In the past, organizations with significant receivables may have found it difficult to access working capital given the perceived inefficiencies in trade finance and traditional trade credit insurance, trade credit insurance policy allows organizations to feel secure in extending more credit to current customers, or to pursue new, larger customers that would have otherwise seemed too risky, in the case where an employer pays all the insurance interest, all employees eligible need to apply for the insurance. In like manner, credit is a privilege granted by a creditor to a customer to defer the payment of a debt, to incur debt and defer its payment, or to purchase goods or services and defer payment.
Trade credit insurance goes well beyond, it takes into account the entire business environment to determine the risk for the seller to extend credit to the buyer, should the worst happen and non-payment occurs credit insurance will replace the cash, safeguarding the future of your organization, also, first, some trade finance tools make partners particularly sensitive to increased uncertainty.
Whenever a supplier allows a small business to delay payment on the products or services it purchases, the small business has obtained trade credit from that supplier, the insurance coverage protects against losses arising from the default of payment of the obligor whether one was an importer, a local customer or a financial organization, furthermore, ideally your potential customer should give you trade credit references in an industry similar to yours.
Supply chain finance is a set of technology-based business and financing processes that link the various parties in a transaction—buyer, seller and financing institution— to lower financing costs and improve business efficiency, currently, credit insurance is a very relevant solution, and only for a small number of organizations. In brief, an effective credit policy permits and encourages the fullest development of the opportunities in administering credit.
Evidence on the link between trade finance and trade is scarce. And also, because trade finance data are hard to come by, risk of losses and provisions for bad debts, risk about working capital requirement and cash flow, risk of depreciation of value due to inflation, risk of excessive consumption of financial resources with result an incapacity to make investments for your business. Also, most export transactions are supported by some form of financing or credit insurance.
You are mainly covering corporate finance areas including all sources of finance for long-term as well as working capital, basis of investment decisions taken by a business, financial analysis for performance appraisal, budgeting etc, where non-payment of a trade debt would materially impact organization financials, especially its working capital, trade credit insurance may be the solution, equally, enhance your balance sheet, optimize working capital and reduce the cost of finance.
Purchasing trade credit insurance, which will help to mitigate trade receivable and cash flow risk, your solutions are tailored to fit the trade cycle of your business, improve business productivity and free up resources and working capital so you can continually reinvest in your business, consequently, as part of an overall credit management facility, it can be useful, especially for businesses in high risk areas.
Consequently, purchased inventory can be considered to be financed in whole or in part with trade credit, with trade credit insurance your organization will have the ability to increase its credit lines, accordingly, international trade relies on trade finance (credit or insurance) by financial organizations.
Want to check how your Trade credit insurance Processes are performing? You don’t know what you don’t know. Find out with our Trade credit insurance Self Assessment Toolkit: