Trade Credit Insurance

Trade credit insurance, also known as accounts receivable insurance, is a risk management tool that protects against domestic and foreign customer insolvency, protracted default and political risks such as currency inconvertibility, expropriation, and nationalization. In addition to risk management, companies use trade credit insurance to improve their borrowing capabilities, increase their sales revenue, and negotiate better purchase agreements with their suppliers.

If you are considering trade credit insurance for your business or just looking to better understand the different options available, we would welcome an opportunity to talk with you. We work with our clients to understand their underlying motivation for obtaining insurance and make sure each policy is specifically structured to each of our clients needs.

What Is Accounts Receivable Insurance?

Part of your business efforts goes into managing your accounts receivable department effectively. Why? If the money is outside, it isn't helping your business to grow. In addition, the longer a debt remains unpaid, the higher the chances of the debt becoming bad (unrecoverable).

Debtors can default for many reasons:

Closing the business or going bankrupt (only a measly 25 percent of businesses live to see their 15th birthday)
Death or illness
Skipping out/running away
Cash flow problems - they can’t afford to pay

Accounts receivable insurance helps you hedge the risk of your accounts receivable ledger. As insurance brokers, we help secure coverage to cushion you against losses if you’re unable to collect from certain debtors.

Why Should I Care About Insuring My Accounts Receivable?

When you can’t collect payments from a customer, you absorb the loss yourself, which impacts your bottom line. Consider these accounts receivable statistics from a 2018 report:

Over 64% of businesses said their overdue invoices increased from 2017
90% reported late payments, especially by B2B clients
Debtors now take an average of 61 days to clear invoices, up from 63 days in 2017. Average payment terms are 31 days, up from 27 days in 2017
49.6% of debtors did not pay on time for lack of funds
Businesses reported 1.8% of their accounts receivable uncollectable, i.e. bad debts

Will you refuse to extend credit because of this? Probably not, because that will reduce your sales significantly.

This is where accounts receivable insurance comes in. By insuring your accounts receivable, you are able to offer credit sales to customers without worrying about whether or not you will be paid.

How Will Accounts Receivable Insurance Improve My Business?

Apart from protecting your business from losses associated with bad debt, accounts receivable insurance can do the following:

Empower you to borrow using your AR ledger as collateral. With coverage, lenders can give you up to 90 percent of your total domestic and foreign ARs
Improve your balance sheet because you can reduce your allowance for bad debts - which increases your earnings
Offer customers better credit and payment terms to increase your revenue without increasing your risk
Service large credit orders that would cripple the business if they went unpaid

You can get these and many more benefits tailored to your exact business needs. As a bonus, our team can help you streamline your AR ledger by advising on credit terms and collection strategies.

When Should I Buy Accounts Receivable Insurance?

Accounts receivable insurance can help you in the following circumstances:

Mitigate the risk of non-payment due to protracted default, insolvency, losses due to political risk, etc.
Help to grow business with new clients without taking on excessive new risks with unknown payment history
To help improve collateral quality which in turn will entice lenders to provide higher advance rates and more favorable terms to finance short term working capital needs
Reduce concentration risks to individual customers or country concentrations