Secure Your Trade, Expand Your Reach
Trade Credit Insurance
Everything You Need to Know about Policy Coverage
Trade credit insurance is a type of insurance that protects businesses against the risk of non-payment or default by their customers (buyers) for goods or services provided on credit terms.
Trade credit insurance is a crucial tool for businesses, providing coverage for commercial and political risks. This type of policy is dynamic, with the credit insurer working closely with the policyholder throughout the year to assess and manage risks. In this article, we will delve into the key aspects of policy coverage, including credit limits, requesting additional coverage, monitoring buyers, and the claims process. By the end, you'll have a comprehensive understanding of how trade credit insurance can protect your business.
Understanding Credit Limits
Once a trade credit insurance policy is in place, the insurer will assign a specific credit limit to each of the policyholder's insured customers. This credit limit represents the maximum amount that will be covered if a buyer fails to pay. Unlike other types of insurance, trade credit insurance policies are not simply filed away for renewal each year; they are continuously reviewed and adjusted as needed.
The credit manager plays a crucial role in this process, actively monitoring the policy and making necessary changes. If a policyholder needs coverage for new buyers or additional coverage for existing buyers, they can request it from the insurance company. The insurer will then assess the risk and determine whether to approve the coverage.
Monitoring Buyers and Creditworthiness
One of the significant benefits of trade credit insurance is the ongoing monitoring of buyers and their creditworthiness. Insurance companies such as Atradius, Euler Hermes, and Coface gather information about policyholders' customers through various methods, including public records, financial statements, and data shared by other policyholders who sell to the same buyers.
By accessing this information, policyholders can make smarter business decisions. The insights provided by the insurer's database allow companies to assess the creditworthiness of their buyers and identify potential risks. This proactive approach enables policyholders to take preventive measures to avoid losses before filing a claim.
Filing a Claim
In the unfortunate event that a policyholder needs to file a claim, a team of claims professionals will guide them through the process. This support is crucial as it ensures that policyholders understand the necessary steps and have expert assistance during a potentially challenging time.
The claims process typically involves providing documentation and evidence of the buyer's failure to pay. This may include invoices, communication records, and any other relevant information. The claims team will review the documentation and work with the policyholder to determine the validity of the claim and the amount to be reimbursed.
The Role of the Credit Insurer
When a business invests in trade credit insurance, the credit insurer becomes an extension of their team. The insurer's role goes beyond providing coverage; they actively monitor the financial health of policyholders' buyers. If the insurer's database suggests that a buyer is experiencing financial trouble, all policyholders who sell to that buyer will be alerted. This early warning system allows policyholders to implement strategies to mitigate potential losses before a claim is even necessary.
