Trade Credit Insurance

Trade credit insurance provides insurance coverage against insolvency, bankruptcy, and dishonesty of buyers (intentional avoidance of settlement). This service is provided to companies focusing on both domestic and export markets.

The Interest of a Company The problem which that undertaking must face Solution
Adjustments to Cash Flow Even temporary insolvency of buyers often disturbs the normal cash flow pattern by freezing of company money and resulting in cash flow shortage. Bank loans or export letters of credit to be used as an alternative means are often unacceptable for various reasons (price, deposit). Payment of a benefit under an insurance contract helps to control and manage cash flow. The actions of the insurance company also often contribute to recovering a number of overdue debts out of court.
Competitive Advantage In order to avoid a higher risk, it is often avoided to postpone payment terms for buyers (especially to new buyers) for a longer period of time. In this way, the competitive advantage is canceled out, and therefore, a certain market share is lost. Coverage of trade credits enables the risk to be transferred to the insurance company. This allows the company to improve its sales conditions and expand business in different markets.
Debtor Credit Assessment When the situation on the market is unstable, the financial capacity of buyers may change significantly. This is especially important when starting to work with new partners. Before taking risks, the insurance company objectively assesses the risk of insolvency of trading with one or another partner along with the solvency of the buyers. Risk becomes manageable and predictable. An effective management system of credit portfolio is established.
Diversification of Risk Majority of policyholders focus their activity on one particular industry, hence the overall turnover is concentrated there. The insurance company breakdowns the assumed risk: it insures different trade credit portfolios and reinsures the risk.

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Darius Klemka

Trade Credit Practice Group Leader