EVERYTHING YOU NEED TO KNOW

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What is trade credit insurance?

 Trade credit insurance is a tool used to reduce or eliminate the risk of non-payment or default of a customer of yours. If a client fails to pay, the insurance company makes good on the obligation. This allows a company to reduce the risk it might incur when taking on new—particularly unknown—clients, or when unforeseen economic, business, or other factors affect its clients’ abilities to pay their bills. It enables a company to cultivate clients in sectors or geographies that are outside its normal client base or geographic market, do more business with existing clients, and extend more credit to its customers, all without increasing the risk of non-payment.

Trade credit insurance accomplishes this by giving the company access to the insurance company’s credit risk analysis and management expertise, and ability to monitor domestic and global developments that could affect a customer’s ability to pay its bills. Few companies on their own can rival the expertise or database of a major global trade credit insurance provider, but nearly everyone can access that expertise by purchasing insurance. 

Why use a broker?

CRS are specialist Credit Insurance Brokers, and as such we have the knowledge of the available markets and experience to negotiate the best combination of cost and cover for your business. We have access to the whole of the credit insurance marketplace, so you can be confident that all possibilities are covered. The market offers a sophisticated portfolio of subtly different products, which are constantly being added to and updated. It is our job to understand and keep pace with all such developments so that you, our client, are fully aware of the options available and the benefits each policy offers.

Each Insurance company can have advantages and disadvantages and it's important that each Client is set up with the Insurance company and program best fit for them. By being with one Insurance Company and not knowing what the other one can offer can be detrimental.

Broker vs. Direct with Credit Insurance Company

Very few policy holders of any type of Insurance would purchase or renew a policy without wanting to know whether they have the best cover at the best cost. As Brokers, we carry out the review for you and in many cases can use our position within the market to negotiate better terms and premiums than you would get direct from an Underwriter. Insurance companies DO NOT give better rates to those who go direct. 

At CRS, we always work on the behalf of the client, and we pride ourselves on our unique ability to proactively manage all aspects of your credit insurance policy, being able to advise you where you are trading outside the terms of the cover in place – not just during the sales process, but also on an ongoing basis throughout the life of the policy. We provide on-going support all the way through the policy period helping to negotiate credit limit cover, and most importantly working closely on all claims to maximize your claim payments. 

How it Works

Accounts Receivable insurance provides coverage to a business when one of its customers fails to make payment on its debt. When obtaining a policy, a company will name the customers to the policy with a coverage amount necessary. If a business has specific customers it has concerns about, the business can choose to insure only these specific customers. Generally, a business can also choose how late a payment must be before the insurer will pay and what percentage of the payment that the insurer will cover. 

What it covers

Though a business can often purchase a custom accounts receivable insurance policy to meet its unique needs, accounts receivable insurance generally covers defaulted payments due to the customer going out to business, changing ownership, becoming insolvent, filing bankruptcy or simply due to nonpayment. Most accounts receivable insurance policies also cover defaulted payments due to economic downturns, seasonal business cycles, natural disasters and geopolitical events. A business can purchase accounts receivable insurance that covers both domestic and international clients. 

Cost

The premium cost of an accounts receivable insurance policy will vary depending on a number of factors including the credit standing and industry of the business. The amount of coverage a business chooses to purchase will also affect the premium cost. However, for coverage of domestic business the cost of coverage will generally equals a small fraction of 1% of Gross annual sales. For international business, the cost of coverage is generally a bit more. 


As an added advantage of having accounts receivable insurance, the insurance company will generally monitor the companies that your policy covers. If one of the companies begins to show signs of financial problems, the insurance company will notify you of these problems. If the insurer notifies you a potential problem with one of your customers, you can take action to protect your interests. 

Accounts receivable (A/R) can represent up to 40% of a company’s assets, and in today’s challenging environment, non-payment of any portion of this can become a serious financial and operational threat to an Business. For example, if a customer defaults on a $150,000 invoice from a company with a 5% profit margin, that company will have to generate $3 million in additional revenues to make up that loss.


The underlying reasons for a default could range from company mismanagement, the rapid rate of technological change and its effect on international consumer demand, to political upheaval in key markets, to regional economic trends and government economic policy changes—all of which can quickly change a customer’s risk profile and ability to pay invoices, and leave suppliers holding the debt.


Today’s competitive business landscape can squeeze company margins to the point where it does not take many bad debt write-offs to push the company to the breaking point. Effective management of (A/R) accounts receivable are, therefore, a vital component of a any healthy business.


A companies A/R can, however, be surprisingly volatile. What seemed like a stable business environment one day can become complete disarray the next. Fortunately there’s a proven solution to protect a business from potential A/R losses and even help expand sales. Whether trading with established customers or seeking new markets, a company can use trade credit insurance to protect its cash flow and balance sheet against the unexpected shock of non-payment. 

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