What is trade credit insurance?

If your customer fails to pay, trade credit insurance safeguards your business. In many instances, credit insurers may cover up to 90% of the debt.

Credit insurance coverage usually applies to customer bankruptcy and political risks, although it can extend to many other causes of non-payment as agreed in the policy terms.

How credit insurance works

Credit insurance works by providing a guarantee that your insurer will pay up when your customer doesn’t. For example if your customer declares bankruptcy after you have shipped goods to them but before they have paid you, the credit insurance will cover your loss.

The application and day-to-day operation of a trade credit insurance policy will vary between insurers. At Atradius Singapore, we offer the Modula Credit Insurance Policy, which provides the flexibility to accommodate individual needs while maintaining the simplicity of a single policy. However, most insurers will echo the approach of Atradius and will start with an assessment of your customer and the application of a risk rating. This rating, also often called a buyer rating, is the likelihood of your customer defaulting on a payment and will be used by your insurer to guide how much of your credit they are willing to insure and other terms.

If your customer fails to settle your invoice, it is best to try and recoup the money first. In many instances your customer may just need extra time, or a staged payment plan. Our professional debt collectors at Atradius Collections are experienced in amicable collections and promoting positive ongoing relationships with customers. If necessary they will escalate the recovery process, liaising with liquidators and lawyers as needed. This service is offered at no additional cost to Atradius Credit Insurance policyholders.

If it is not possible to recover the money owed to you, your insurer should pay up in according to the terms of your policy. Whether through debt collection or insurance you should get all or most of your money back.

This short video provides an overview of how credit insurance works.

What does credit insurance cover?

Credit insurance covers all of your transactions with a specific customer. It helps protect your cash flow by covering every transaction you have with that customer over the course of a year. It is not normally used for single transactions, although Atradius Special Products can be tailored to individual projects as needed.

Credit insurance typically covers customer bankruptcy or events that may affect their ability to pay, such as war, terrorism, changes to import and export regulations and other ‘disasters’. Atradius credit insurance covers all sizes of business, from SMEs to large corporates trading either domestically or internationally.

Advantages of a trade credit insurance policy

A good trade insurance policy can provide many advantages beyond peace of mind when trading. For example Atradius has access to trading information on millions of companies worldwide, enabling us to support your own due diligence when assessing credit worthiness of trading partners. This can be particularly helpful when exploring new markets and building relationships with new customers.

Many management boards require credit insurance as part of a company’s credit control processes. A robust credit insurance policy can also support access to finance and help build confidence between businesses and their banks and lending institutions.