Exploring the Advantages of Trade Credit Insurance

COVID-19, Property & Casualty, Risk

Since 2020, global trade has experienced significant transformations and has prompted businesses to navigate a dynamic and unpredictable economic environment. Along with the ongoing concern about an impending recession, organizations must proactively assess the potential risk of customer default or insolvency.

Trade credit insurance works as a prudent risk management tool, offering your organization protection and peace of mind in the event of insolvency or default from your customers. In this article, we delve into the question of what your organization stands to gain from the coverage offered by trade credit insurance. For further information about trade credit insurance, contact your M3 account executive.

New Customers and International Sales

As a business leader, you may question the decision of whether to take a chance with a new customer due to the factors we mentioned above. Expanding your customer base can help fuel your growth but can also introduce an element of risk. In addition, if you are looking to sell to customers beyond your typical geographic boundaries, you must be cautious about the potential risk, including international trade complexities or currency fluctuations.

Another factor to consider: do you have customers who become frustrated when you request payment upfront until an established relationship is built? This can put business leaders in a tough position. Balancing the risk with an unfamiliar entity while also trying to gain new business can present many challenges.

Does most of your business rely heavily on one or two main customers, regarding revenue? If this is the case, you are exposed to an elevated risk in the event your key customer faces financial difficulties or goes out of business – leading your own organization to suffer the blow.

If you connect or relate to any of the above, then you should consider trade credit insurance!

So, What Are the Benefits of Trade Credit Insurance?

Trade credit, also known as accounts receivable insurance, was created to protect your business when a customer fails to pay a trade debt and ensures your business remains financially stable. The credit insurance can indemnify up to 95% of the debt owed to your organization.

Specific benefits of trade credit insurance include:

  • Bad debt collection: Trade credit covers a portion of the outstanding amount, which creates a safety net to focus on growth vs. potential loss
  • Sales growth: With the supplement of credit protection, you can explore new markets and engage with new customers
    • This product complements prudent credit management practices
  • Improved financing and working capital: Trade credit can enhance your credibility in the eye of lenders or investors, which can lead to better financing terms
  • Credit department efficiency: Trade credit insurance companies can conduct credit assessments of future/potential customers

Key Takeaways:

Trade credit insurance, also known as accounts receivable insurance, is a solution that offers protection against customer insolvency or default. Organizations that leverage trade credit insurance can confidently navigate the fluctuation in the global economy and position themselves for sustainable growth. Reach out to your M3 account executive to discuss if trade credit insurance is right for your organization.

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