Credit Insurance
Q1. How can trade credit insurance ensure my company’s liquidity?
A1: Outstanding receivables are usually the largest or second largest item on a trading company’s balance sheet. Bad debt losses can affect liquidity and profits. Even worse, they can cause a company’s financial ruin. Late payments or non-payments therefore pose a considerable threat to future liquidity of that company if no measures are taken. By insuring these receivables against non-payment or late payments, the company ensures its cash flow. Companies that have their business financed by a bank can assign their credit insurance policy to their bank as a security and frequently can borrow against the policy on more favourable terms and conditions.
Q2. Debt Collections: How does this work?
A2: If a buyer is late in paying his bill, an established collection procedure is required of the supplier. Most suppliers have internal guidelines on how to deal with late payers. However, sometimes these efforts do not have the desired effect. In these instances it can be helpful to employ a professional collection agent. Recovery approaches include telephone calls, written demands, and visits to the buyer’s premises. Most credit insurance companies offer debt collection services, or have partnered with specialised collections firms who can provide this service.
Q3. Protracted Default: What is this?
Policies that include this cover pay out if a buyer is late in paying, and payment is still due after a pre-determined period (usually 60-180 days after due date of the invoice). After this period the buyer is presumed to be insolvent provided the delay in payment is not due to an unresolved valid dispute.
Q4. Political Risks: Is this included in a trade credit insurance policy?
Trade credit insurers that insure export risks normally also offer a political risk cover endorsement for an additional premium. This is the risk that payment cannot be made due to actions or inactions by a foreign government such as transfer restrictions, nationalisation, war or civil disturbance.
A1: Outstanding receivables are usually the largest or second largest item on a trading company’s balance sheet. Bad debt losses can affect liquidity and profits. Even worse, they can cause a company’s financial ruin. Late payments or non-payments therefore pose a considerable threat to future liquidity of that company if no measures are taken. By insuring these receivables against non-payment or late payments, the company ensures its cash flow. Companies that have their business financed by a bank can assign their credit insurance policy to their bank as a security and frequently can borrow against the policy on more favourable terms and conditions.
Q2. Debt Collections: How does this work?
A2: If a buyer is late in paying his bill, an established collection procedure is required of the supplier. Most suppliers have internal guidelines on how to deal with late payers. However, sometimes these efforts do not have the desired effect. In these instances it can be helpful to employ a professional collection agent. Recovery approaches include telephone calls, written demands, and visits to the buyer’s premises. Most credit insurance companies offer debt collection services, or have partnered with specialised collections firms who can provide this service.
Q3. Protracted Default: What is this?
Policies that include this cover pay out if a buyer is late in paying, and payment is still due after a pre-determined period (usually 60-180 days after due date of the invoice). After this period the buyer is presumed to be insolvent provided the delay in payment is not due to an unresolved valid dispute.
Q4. Political Risks: Is this included in a trade credit insurance policy?
Trade credit insurers that insure export risks normally also offer a political risk cover endorsement for an additional premium. This is the risk that payment cannot be made due to actions or inactions by a foreign government such as transfer restrictions, nationalisation, war or civil disturbance.