How Trade Credit Insurance Policy Can Protect Your Business from Bad Debts?

Bad debts are unavoidable for businesses as goods or services are generally offered on credit terms. Small debts are manageable and expected to be a part of the business, but unexpected large losses are devastating.

In some scenarios, the working capital is at risk, which can push the business towards insolvency. Even if you are cautious exposing your business to bad debtors cannot be avoided. Fortunately, trade credit insurance coverage is a great solution for business sustainability. You can continue operating the business successfully even if the debtors fail to pay.

Niche Trade Credit offers credit assessment & health checks to give clients an idea of their receivable portfolio status. Even with bad credit protection, you need to ensure compliance, policy renewals, monitor credit limits, and overdue reporting, which the NTC team provides efficiently.

Trade credit insurance offers protection against political risks, insolvency, and defaults. You feel you know your customers, but are unaware of their financial stress until they default especially when the amount involved in bad debts is gigantic.

How does trade credit insurance help your business?

Lessens the risk of loss

The most at-risk asset in the businesses is the outstanding money or receivables. Trade credit insurance coverage is a safety net against such invoices default.

Enhance sales development

You can penetrate new markets without any stress. Improve your credit lines with current clients or offer extra competitive credit terms to new buyers.

Credit risk management

Trade credit insurance provider plays the role of a partner and assists in avoiding credit losses. The insurance provider supplies market intelligence that includes deep insight into potential buyers’ financial viability.

Enhance working capital access

Trade credit insurance policy adds value to a business. If you plan to sell the business in future, the credit insurance can enhance your book value because it is perceived to be secure. If you desire to expand your company then banks will approve your large amount loan application as the risk of payment default on your part is reduced.

Lowers bad debt reserve

The write-offs are managed with more certainty, which in turn enhances your profit margin. Thus, your bad debt reserve is reduced. The premium you pay for the credit insurance policy are tax-deductible.

Easily avert sudden impact on your business

Unanticipated insolvency is a major impact on any business operations. With active trade credit insurance coverage, the business owners can detect alerts of potential payment hardships.

Smooth cash flow

Cash flow is the lifeblood of every small and big business. Without invoice payments, you are unable to pay staff wages, office rent, utility bills, etc. Trade credit insurance is an efficient risk management tool that helps your business stay afloat when clients fail to pay their invoices.

Types of credit trade insurance coverage

  • Whole of turnover – All receivables are covered.
  • Selected Risk – Major accounts are covered up to an agreed amount.
  • Catastrophe – All receivables are subjected to a self-insurance sizeable level.

The amount of premium is based on insured turnover. Cash sales, taxes, sales to government, inter-company business as well as mutually omitted debtors. The underwriter and the insurer negotiate the premium rate. Remember high self-insurance will reduce the premium rate.