Trade credit risk insurance covers companies against losses incurred by debtors. If you’ve loaned money to a commercial client, and they can’t repay, the TCI policy protects you. It’s been known as accounts receivable insurance, too. By holding a policy, it can stabilize cash flow and improve your financing offers.
How Does Trade Credit Risk Insurance Work?
When someone asks for credit insurance, the insurance company looks at several factors. First, they check out how much trade the business does on a regular basis. Then, they pull the business’s credit to see if it has a good payment history.
Most of the time, coverage costs less than 1% of the volume of sales insured. Businesses may scale coverage according to their risk tolerance as well.
When Do Trade Credit Risk Policies Pay Out?
If a covered client fails to pay, you may file a claim. Your policy will provide each client with a specific credit limit. When you file, you’ll be eligible to receive up to that amount, called an indemnity ceiling.
What Are the Benefits?
As a business owner, there are many incentives to offer clients large credit limits. They’ll be more likely to increase the size of their orders if you can finance their purchases. However, that also puts your business at risk if a client fails to pay.
By obtaining trade credit risk insurance, you can reduce the risk of offering credit. So, if a client fails to pay, it won’t disrupt cash flow as much.
Trader Risk Group is a leader in credit insurance products throughout Yardley, PA. Visit their website at traderiskgroup.com to learn more.
