Credit insurance protects businesses from non-payment of commercial debt. It makes sure
invoices will be paid and allows companies to reliably manage the commercial and political
risks of trade that are beyond their control. Capital is protected, cash flows are maintained, loan
servicing and repayments are enhanced, and earnings are secure from these events of default.
secure in extending more credit to current customers,
or to pursue new, larger customers that would have
otherwise seemed too risky. The protection it provides
allows a company to increase sales to grow their business
with existing customers. Insured companies can sell on
open account terms where they may have previously been
restrictive or only sold on a secured basis. For exporters,
this especially can be a major competitive advantage.
Companies invest in trade credit insurance for a
variety of reasons, including:
Sales expansion – If receivables are insured,
a company can safely sell more to existing
customers, or go after new customers that
may have been perceived as too risky.
Expansion into new international
markets – Protection against unique
export risks and market knowledge to make
accurate growth decisions.
Better financing terms – Banks will typically
lend more capital against insured receivables,
and may also reduce the cost of funds.
Reduction in bad-debt reserves – Insuring
receivables frees up capital for the company.
Also, credit insurance premiums are tax
deductible, but bad debt reserves are not.
Actionable economic knowledge – The
trade credit insurer’s information database
and technology platform help reduce
operational and informational cost.
Protection against non-payment and
catastrophic loss – Should an unforeseeable
event catch a company and its insurance
carrier without warning, the bill gets paid via the claims process.