To take control of your cash flow, consider the benefits of trade credit insurance. It’s an important business tool that helps you lower the risk for bad debts or unpaid accounts receivable. If you are curious about how much credit insurance costs, remember this: there are ways you can help control those costs and make a good trade credit insurance investment that helps you grow your business. This additional growth often helps offset the cost of trade credit insurance.
Credit Insurance Cost and Pricing
What is Trade Credit Insurance Coverage?
Credit insurance coverage 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. It ensures that:
- Capital is protected
- Cash flows are maintained
- Loan servicing and repayments are enhanced
- Earnings are secure
While commercial credit insurance can be a smart investment for many companies, it may not be the best choice to companies that sell exclusively to governments or retailers since trade credit insurance only covers business-to-business accounts receivable.
A trade credit insurance policy allows companies to feel 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 can be a major competitive advantage.
It is also important to know what trade credit insurance is not. Credit insurance is not a substitute for prudent, thoughtful credit management . Sound credit management practices should be the foundation of any credit insurance policy and partnership. Credit insurance goes beyond indemnification and does not replace a company’s credit practices, but rather supplements and enhances the job of a credit professional.
You may decide to invest in trade credit insurance if you are looking to:
What does trade credit insurance cost?
The cost of your trade credit insurance policy will vary depending on your industry, your annual revenue that needs to be insured, your history of bad debts, your current internal credit procedures and your customers’ creditworthiness, among other factors.
If you sell to clients in a mix of industries and countries, your trade credit insurance rates will reflect the risk determined to be associated with all of them.
How is your trade credit insurance premium calculated?
Your credit insurance premium is based on a percentage of your sales, conservatively around 0.25 cents on the dollar. If your sales were $20 million last year and you want to cover that entire revenue, your premium would typically be less than $50,000.
A trade credit insurance policy can typically offset its own cost many times over, even if you never make a claim, by increasing your sales and profits without taking on additional risk.
Getting a trade credit insurance quote is the most accurate way to determine cost. There are many different policies designed to cover specific business needs.
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Commen Factors Influencing Credit Insurance Cost & Premiums
Remember, your trade insurance premium can change depending on multiple variables, including but not limited to:
When your trade credit insurance policy premium is calculated, one of the first factors considered is the industry you are in and your business’s financial and trading history. Your turnover and loss history, credit terms and receivables history will be reviewed. If your history shows a high number of defaults by clients, it doesn’t necessarily mean you will have a higher trade credit insurance premium. Many factors are considered and some that can outweigh a poor receivables history include market outlook for your industry and future demand for your products.
Next, important information about your trading partners is factored in. It’s important for your insurer to know about the creditworthiness of your trading partners and the history they have with you.
In addition, it is important for your insurer to understand where in the world your customers are located. They want to understand the risks associated with a country’s infrastructure, political climate and economic outlook. If you sell to a mix of clients in different countries, your rates will reflect the risk across all of them. Conversely, if you sell only to a particular high-risk industry in only a few countries, your rate may be higher due to the increased risk.
Finally, the annual revenue you want insured and the type of trade credit insurance policy you choose will be factored in. The four types of trade credit insurance policies include whole turnover, key accounts, single buyer and transactional coverage.
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What does trade credit insurance cover? It protects businesses from non-payment of commercial debt. It covers your b2b, corporate insurance and accounts receivable. If you do not receive what you are owed due to a buyer's bankruptcy, insolvency or other issue, or if payment is very late, the policy will reimburse you for a majority of the outstanding debt. This helps you protect your capital, maintain your cash flow management and secure your earnings while extending your competitive credit terms and helping you access more attractive financing. With trade credit insurance, you can reliably manage the commercial and political risks of trade that are beyond your control. It can help you feel secure in extending more credit to current customers or pursuing new, larger customers that would have otherwise seemed too risky.