Bruce Mather
Development Manager
Zoltan Urban
Senior business managerTrade Credit Insurance
Trade credit insurance is protection for a business against the possibility of non-payment. Essentially, when selling on credit terms there is a risk that customers will not be able to pay, this could be for many reasons but the most common is insolvency. The resulting bad debt can have a dramatic impact, for example, it could slow expansion, hinder cash-flow, or put the business at risk of collapse.
A business that loses $50,000 as a result of non-payment, will have to sell another $500,000 worth of goods or services at a 10% profit margin to recoup those losses. Trade credit insurance not only protects a business from the impact of a bad debt, but it gives directors and owners peace of mind that they will be protected and puts cash back in their pocket!
Why consider Trade Credit Insurance?
Trade credit insurance protects your accounts receivable ledgers and typically pays claims at 90% of the debt against the following triggers:
- Insolvency
- Prolonged periods of non-payment
- Preferential payments
There is scope to mutually exclude blue chip accounts to save on premium.
The benefits of trade credit insurance:
- Grow your business by transferring the risk to the insurer
- Protect your profit
- Have peace of mind knowing potential failures have been covered
- Additional security for banks and financiers
- Realise cost savings for collections and legal fees with insurer reimbursements for insured debts
The trade credit insurance market is continually changing, if you would like information on what is happening right now, please contact us.
How does Trade Credit Insurance work?
What can go wrong?
A real estate agent checking why a tenant was not answering any calls arrived at an insured property to find the premise vacant after 5 months into a 12 month rental agreement, with severe internal damage to wall structures, fixtures and fittings. A search was conducted to locate the tenant who had vanished leaving $31,430 in damages. The insurer paid for damages and the premise was relet 4 months later. The tenant had Rent Default cover and received 12 weeks rent.
FAQs
Trade credit insurance protects businesses against losses from non-payment of commercial debt. It’s designed for companies offering credit terms, safeguarding against customers’ default, insolvency, or bankruptcy. This insurance helps businesses manage risk and expand safely.
Trade credit insurance covers businesses against non-payment risks. Companies select which receivables to insure, and if a covered customer defaults, the insurer compensates for the loss after deductibles. Premiums are based on coverage amount and risk level.
The cost varies based on factors like annual turnover, industry, and customer creditworthiness, typically ranging from 0.1% to 1% of insured sales or receivables. Rates depend on risk assessment, coverage limits, and deductibles.
It covers insolvency, protracted default, and political risks affecting sales on credit terms. Policies can be customised for whole turnover or specific accounts, providing tailored protection against non-payment.
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