What are the Benefits Of a Trade Credit Insurance Policy?

A Trade Credit Insurance Policy, also known as Accounts Receivable Insurance, helps businesses protect their receivables.  A Trade Credit Insurance Policy reimburses the seller if a buyer defaults on payment for goods or services that he has received.

 

What does a Trade Credit Insurance Policy Cover?

A Trade Credit Insurance Policy pays the seller if a buyer defaults on the payment in case of the following circumstances:

  • Protracted Default:When a buyer delays payment to the seller beyond a pre-specified time period, the seller can file a claim for reimbursement from his Trade Credit Insurance Company in India
  • Buyer Insolvency: A Trade Credit Insurance Policywill also reimburse the seller in case the buyer declares bankruptcy and is unable to make the payment owed to the seller.
  • Political Risk: There may be cases where the buyer may be unable to make the payment owed to the seller because of Political Issues in the country. The Trade Credit Insurance Policywill reimburse the Seller for his losses in such a case.

 

Today, when most business is done on credit, a Trade Credit Insurance Policy in India is an essential tool to manage risks and secure cash flows.

 

What are the benefit of a Trade Credit Insurance Policy in India?

The Benefits of a Trade Credit Insurance Policy are as follows:

 

Improved Cash Flow: A Credit Insurance Policy would pay even if the seller delays payment beyond a specific time period (Protracted Default). Unpaid Invoices lock up capital resulting in stretched cash flows for the seller. A Trade Credit Insurance Policy will be useful in such a case, since the seller can file a claim for delayed payments by the buyer as well. This increases the company’s cash flow and keeps the number of receivable days outstanding under control.

Easier Financing from Banks: Banks normally extend Credit to the companies on more lenient terms if they are aware that the receivables are backed by a Trade Credit Insurance Policy.

Increased Sales Potential: When a business secures its accounts receivables with Trade Credit Insurance Coverage, the Trade Credit Insurance Company assesses the creditworthiness of the firm’s clients and gives a credit limit. Since the receivables are secured, the seller can make sales to new buyers without worrying about the risk of his creditworthiness since that risk has been transferred to the Trade Credit Insurance Company. Thus, Trade Credit Insurance Policy helps in achieving increased sales without worrying about the risk of unpaid invoices.

Early Warning Signals: Trade Credit Insurance Coverage assists companies by providing early warning signs of probable payment problems from the buyer’s end. The Trade Credit Insurance Companies continuously monitor the creditworthiness of various companies and can warn the seller of payment difficulties on the buyer’s end in a timely manner. This enables the seller to take mitigating measures to reduce the risk. This is a big benefit of a Trade Credit Insurance Policy.

 

A Trade Credit Insurance Policy is an indispensable tool to manage risks of unpaid invoices in today’s volatile economy. Companies looking to purchase a Trade Credit Insurance Policy should also look at the exclusions in a Trade Credit Insurance Policy in detail to be aware of what a Trade Credit Insurance Policy does not cover. Additionally, they should avail the assistance of an experienced Trade Credit Insurance Broker in India to avail the best Trade Credit Insurance Coverage and Quotes.

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