Protecting Your Business and Ensuring Financial Stability

In today’s uncertain economic environment, businesses face significant risks, including the threat of non-payment by customers. Trade credit insurance (TCI) offers a powerful safety net that protects your accounts receivable and enhances financial stability. This two-part series explores the value of TCI, the potential expense of not having it, and the crucial role a trade credit insurance broker plays in the business credit application process.

Understanding Trade Credit Insurance

Trade credit insurance safeguards businesses against non-payment risks by customers. It covers losses from customer insolvency, protracted default, and political risks affecting cross-border trade. By securing receivables, TCI enables businesses to confidently extend credit to customers, fostering growth and expanding market opportunities.

The High Cost of Not Having Trade Credit Insurance

Operating without trade credit insurance can expose your business to significant financial risks that can otherwise be avoided.

1. Bad Debt Losses: Without TCI, any default or insolvency by a customer directly impacts your bottom l line. A major client’s failure to pay a substantial invoice can severely affect cash flow and lead to financial distress.

2. Restricted Credit Terms: Uninsured businesses may hesitate to extend credit, limiting sales growth and competitive advantage. Fear of non-payment can force cash-on-delivery terms, driving customers to competitors offering more flexible payment options.

3. Increased Borrowing Costs: Lenders view insured receivables as lower risk, leading to better financing terms. Without TCI, borrowing costs may increase due to perceived higher risk, reducing profitability.

Banks love it when their borrowers have a trade credit insurance policy in place, and it’s very inexpensive when compared to taking a loss from a customer’s non-payment.”, says David Clark, a seasoned trade credit insurance broker at ARI Global with over 20 years of experience.

How Trade Credit Insurance Works

When a customer files for bankruptcy, companies typically must hire an attorney and hope the customer files chapter 11 vs. chapter 7 (liquidation). Even in chapter 11, they should expect no more than fifty cents on the dollar plus costs. In chapter 7, they will get nothing in most cases. With Trade Credit Insurance, the company facing the loss simply files a claim with the insurance carrier and in most cases receives a check for their debt as early as 30 days. For slow-pay claims not involving insolvency (protracted default), they can expect a check as soon as 90 days from the claim in most cases. The amount of the insurance payment is predetermined in the policy but could be as much as 90% or more of the expected loss. And this is why banks love it when their borrowers have a trade credit insurance policy in place.

Want More Information?

Trade credit insurance is a vital tool for safeguarding your business against customer payment uncertainties. Smart business leaders reach out to seasoned trade credit insurance brokers, like David Clark, who take the time to understand the company’s specific credit risk and negotiates the right policy with the right carrier to ensure your company’s AR is protected from potential loss. By mitigating risks and unlocking new financial opportunities, TCI enables you to focus on growing your business and serving your customers.

For more information about how you can protect your company from trade credit losses, reach out Green Zone by clicking the button below and mention “trade credit insurance question”.