Whether you are an importer or exporter, or you commonly provide goods and services to companies in foreign countries where political risks and other issues may present risks to your cash flow, proper insurance is critical for risk management.
If you work with a company and they fail to pay on your stated credit terms – like net 30 days – the impact to your accounts receivable and cash flow can be devastating, particularly for smaller firms. That’s why you need to protect your credit portfolio from bad debts.
But you may not be sure what type of insurance is right for you. Is export insurance what you need? What about trade credit insurance? In this article, we’ll explain everything you need to know.
Export Insurance & Trade Credit Insurance Are The Same Thing
While this may be confusing, it’s true. Trade credit insurance and export insurance are just two terms that insurance companies use for the same product.
Why are there two names for trade credit insurance? Mostly due to regional differences. Insurers in many different countries offer this type of policy, so it’s only natural that there would be a few terms used to mean the same thing.
Both types of insurance work the same way. Export insurance, like trade credit insurance, protects your company from bad debt and protracted default. You insure your accounts receivable with a policy, and then if a company does fail to pay, your insurance company will attempt to recover your money with a debt collection service.
If it is not possible to recover funds within a specified period of time – such as 6 months – you’ll be compensated by your insurance company, and you’ll receive between 70-95% of the value of the unpaid invoice, based on the terms of your policy.
Typically, you’ll need to implement some credit control terms when you get a trade credit insurance policy, and do things like implement a credit limit for each customer. This helps reduce risk, both for you and your insurer.
Why Should I Get An Insurance Policy?
So, why should you think about getting a trade credit insurance/export insurance policy? Here are just a few of the reasons that companies which sell to international buyers invest in coverage from an insurance company.
1. Safeguard cash flow – Trade credit insurance allows you to get compensation even if your customers don’t pay, which helps preserve your capital and cash flow, even during protracted default.
2. Sell to new customers – With trade credit insurance, you can sell to new customers in different countries while minimizing your risk, and you do not have to deal with cash settlements, and can instead extend standard credit terms, like Net 30 days.
3. Costs of recovering debt are covered – Your insurer will always try to recover debt from a non complying company before issuing compensation, and the costs of attempting to recover debt are included in your policy.
Learn More About Trade Credit Today!
If you would like to increase your market knowledge and get more information about credit management and trade credit / export insurance, contact Niche Trade Credit right away. As a leading trade credit insurance broker in Australia, we can tell you everything that you need to know.
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