Trade credit or account receivable insurance differs from the regular definition of ‘insurance’. It protects your organization from unpaid invoices due to customer default, bankruptcy, political risks, etc. Your account receivables get insured, so it is also called export credit insurance or debtor insurance. It empowers your trading decision as you get a reimbursement guarantee in sudden cases where the customer is unable to pay.
How does account receivable insurance works?
For 30 years, a Niche Trade Credit firm based in Sydney has been offering clients profitable outcomes. Businesses are suffering because of the focus on sales numbers and revenue. Credit risk, receivable management, and cash flow get ignored but NTC offers the best credit management services. Trade credit insurance helps to protect your cashflow. Your trade with clients gets covered, so if they fail or underpay you are still reimbursed by the insurance provider.
Account receivable insurance offers coverage on every invoice with a specific client for a certain period. Businesses of all sizes-small, medium, or large get protection on domestic and foreign trades. Credit insurance even helps to secure working capital from banks. Thus, you can reduce overall financial risk and confidently explore the new markets for sales expansion.
The credit insurance cost and the level get defined by your business needs. It can include your risk level connected with the customer, unique market location, and credit portfolio. The majority of debt insurance solutions get customized according to your business requirements. The working of the credit insurance policy can be defined in three steps.
- Approval of credit terms with insurer and clients – The trade-credit insurer evaluates the potential customer’s financial health and applies a ‘buyer rating’. It gives you and the insurer an idea of the risk exposure. A solid buyer rating allows you to secure potential customers with favorable credit terms. A poor buyer rating helps to avoid risky customers.
- Trade confidently – After approval of the credit insurance policy you can carry on your business confidently and as usual. A few insurers offer ongoing support and share market knowledge.
- Handle unpaid invoice – If the invoice stays unpaid, notify the insurer. The first approach for debt recovery is amicable. The client is given sufficient time to repay or renegotiate the payment terms. If the insurer offers debt collection services in the insurance package, they will initiate the procedure. In case the client went bankrupt, the insurer handles the liquidator or receiver on your behalf.
If debt recovery is not possible, the insurer pays you up to 90% or according to policy terms. Thus, you suffer a little loss, which is a lot better!
Account receivable insurance benefits
- Potential buyers get attracted to favorable credit terms and thus your customer base grows.
- You can confidentially expand to the new markets and improve trade.
- Sufficient cashflow empowers to build a good relationship with employees and suppliers.
- Access to working capital with a bank is made possible.
- Fulfills stakeholder’s risk management needs, which offers peace of mind.
Credit insurance is appropriate for every type of business!