Trade Credit Insurance: Is it time to insure your Debtors’ ledger?

 

A large part of success and longevity in business requires finding new processes for growth and innovative ways to target additional markets and customers, through engaging new suppliers. Without an existing relationship with stakeholders, we can’t trust that timely payments will be received. Yet in business-to-business provision, credit terms are the acceptable form of remittance. Unfortunately, with each credit granted, we increase the strain on cash flow and expose ourselves to the inherent and significant risk of never being paid. So how do we ensure our businesses are protected from bad payers and a potentially long list of debtors? A Trade Credit Insurance policy.

 

What is Trade Credit Insurance?

Trade Credit Insurance, also known as export credit insurance or business credit insurance, is designed with your cash flow in mind. Trade Credit Insurance can protect you against bad debts or the insolvency of your business suppliers. The money owed by debtors is one of the largest assets for most businesses and yet it is often uninsured. This insurance is of largest use in the construction, mining, transport and civil industries, but exposure can be applicable in any industry, particularly those who rely on one or two main entities for the majority of their work.

 

What risks are covered by a Trade Credit Policy?

Commercial Risk Cover

  • Customer insolvency
  • Protracted default (failure of your supplier to pay within a specific time period following their due date)

Export and Political Risk Cover

  • Contract frustration (due to war, civil war, riots or commotions)
  • Inconvertibility of currency (inability to pay in the invoiced currency)
  • Cancellation of import or export licences
  • Contract cancellation (resulting from action by the Government of the buyer’s country)
  • Contract repudiation (customer’s failure to accept goods despatched)

 

Added Benefits from Trade Credit Facilities

Selected Trade Credit providers can also offer thorough solutions for your business:

  • Credit risk management (insolvency advice, debtor investigations and preparing new or auditing current credit management procedures)
  • Reporting (from simple credit checks through to thorough investigative reports)
  • Access to the Personal Property Securities Register (PPSR) portal for debtor monitoring and alerts to sudden changes in debtor circumstances

 

Ask yourself:

  1. What would the impact on your business be if your largest client couldn’t pay? Could your cash flow remain intact to make up for the short fall?
  2. How do you assess the credit worthiness of a new or potential client? Do you have a vetting procedure before credit terms are offered?
  3. How do you monitor the credit risk factors of your debtors?
  4. Do you have a tested and practised, successful method of debt recovery?

 

By taking out a Trade Credit policy, you are ensuring safer business growth, enhanced in-house credit management, greater borrowing and financing options and secure, timely debt recovery. Contact your broker on 08 9349 7900, who can connect you with the right provider to protect your financial resources and grow your business!