What Is Trade Credit Insurance?

Everyone should learn about Trade Credit Insurance. Trade Credit Insurance gives businesses an additional layer of security and protection in case a customer or client fails to settle outstanding credit debt. Hence, it is important that everyone involved in handling a business is familiar with the policy to make sure that the business remains in good shape and with steady financial cash flow.

Customers have several reasons why they fail to meet a due payment for a business or service they’ve previously enjoyed. Some of these reasons are out of the manager or business owner’s control, so there is a need to know the alternative processes that can be managed instead. Having a working knowledge of the Trade Credit Insurance policy is a good beginning among those you can control.

In this piece, we spoke with Scott from JMA Credit Control in Melbourne and he will be sharing with us his knowledge about Trade Credit Insurance and why you should incorporate this in your business model. 


What is Trade Credit Insurance?


Trade credit insurance is a policy for all kinds of businesses – be it trading or service providers, manufacturers or third-party outlets. This insurance policy protects your business interest from having financial losses due to unpaid dues and debts. If the customer pays his or her contractual obligations in a very late manner or elects to forego payment completely, the trade credit insurance will be your safety net at is set up to pay for a specific percentage of the total amount in debt; this greatly helps the business regain some financial comfort.


Clients often used as grounds for delayed payment or nonpayment issues like delayed liquidations, bankruptcy and other types of insolvency. Regardless of reasons, the trade credit insurance will protect the business from the clients’ non-payment to make sure that the business will not adversely suffer significant losses due to the customers’ inability to honour their obligations. 

Aside from keeping the business running, trade credit insurance also helps business owners better manage its business’ credit scores, which in turn can result in many opportunities in the future, more so if it is looking to expand. 


What are the benefits of Trade Credit Insurance?


The best benefit of having trade credit insurance is being completely protected from suffering financial losses due to client bankruptcy. The business’ overall capital gains, as well as its cash flow, are continuously prevented from monetary loss by means of a credit insurance claim that brings money right back into the business. With this, the business will eventually gain a reputation for being financially sound and stable, able to stand strong even after suffering what should have been significant non-payments. This improved credibility will not only help with loan and extension applications in the future but it will also win your business customers’ respect, strengthening more your relationship with the ones you already have. 


Should I go for Trade Credit Insurance?

More often than not, all it takes to send business to bankruptcy is one large account abscond. Regardless of your business relationship with your customer and/or client, any written contracts and other binding agreements you signed with them will be nothing once such client decides to bail on you. Surely, you have several legal remedies that you can take to get your money back, but all that will go with a long and taxing process with all the legal fees that come it. 

To draw a clearer picture, most startup businesses have a profit margin of 10%, and that is already being generous on the market. If the business accumulates up to 20,000 dollars in uncollected debt, that means you would be down by 18,000 dollars. Depending on the stability and size of the business in its industry, this kind of financial loss can prove to be detrimental for the company. If not, the pecuniary loss will still be significantly felt across all business decisions because the company will have to somehow earn a huge amount of money just to compensate for the loss.