Offering trade credit to your customers can be a double-edged sword. While it can open the door to increased sales, conversions and customer loyalty, there is always a risk that some customers might not pay up. That’s where trade credit insurance comes in.
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By insuring your accounts receivables for a fee, you can guard against the threat of unpaid invoices, protect your cash flow and safeguard your business profile in the eyes of partners. Whether you’re trading locally or internationally, this guide covers what trade credit insurance is, how it works, and how it can help your business stay resilient.
Trade credit insurance is a policy for businesses dealing with B2B payments that protects you from losses if a customer can’t pay their invoices. According to research from the UK government, the most common reasons for late payments include cash flow issues on the customer side, customers themselves being paid late and external factors like economic instability.
For sellers, trade credit insurance ensures that if the unexpected happens, you won’t be left covering the loss yourself. Insurers typically cover up to 90% of unpaid debts, providing a financial safety net and keeping your cash flow safe.
It’s an especially useful tool for businesses that regularly trade on credit terms, helping to balance the risks of offering flexibility to customers with the need for financial stability.
Trade credit insurance can function at a broad level across your business, or at the level of the individual transaction. Here’s how it works:
By integrating trade credit insurance into your processes, you can focus on running your business and making sales, knowing you’re protected against potential losses.
Trade credit insurance premiums are typically calculated as a small percentage of a company's insurable turnover. This percentage can vary based on factors such as the company's trading history, turnover, industry sector, customer base, and the countries in which it operates. For instance, premiums often range from 0.05% to 0.6% of turnover, with 0.2% being a common rate.
It’s worth noting that these figures can differ based on the specific circumstances of each business.
Trade credit insurance offers more than just financial protection for individual payments. It can also be a strategic tool for positioning your business as a safe bet for financial providers and business partners.
Integrating trade credit insurance can be a smart move for many industries, depending on the payment terms and transaction volumes you usually manage. Here are some tips to make it work easily with your existing processes:
Trade credit conditions vary with every industry in line with its own challenges, so you’ll also find a wide variety in trade credit insurance to match.
Tailored policies ensure you get the protection that matters most to your business, adding features that match your business model and reducing unnecessary costs from unnecessary add-ons. In the UK, several insurers offer industry-specific trade credit insurance to address these unique challenges. Providers such as Allianz Trade, Coface, Euler Hermes, Atradius, and Zurich Insurance have developed targeted solutions for sectors ranging from construction and retail to export markets, ensuring that each industry’s distinct risks are appropriately managed.
While trade credit insurance is a solid way to manage risk, it’s not always the simplest or most cost-effective solution for making sure you get paid.
With iwocaPay, you can offer B2B BNPL (Buy Now, Pay Later) flexible payment terms to your customers without taking on the risk yourself. We pay you upfront for invoices, so your cash flow is secure, and we handle credit checks, payment collections, and defaults. So you can skip the complicated insurance policies while giving your customers the flexibility they want.
iwocaPay gives you the confidence to offer credit without the complexity of trade credit insurance.
Get in touch to find out how easy it is to get started.
Trade credit insurance is particularly beneficial for businesses that sell goods or services on credit. Consider the likelihood of customer non-payment due to insolvency, default, or economic risks in your industry. It can also be useful for ambitious businesses looking to expand into new markets without fear of bad debt.
Once a claim is submitted and approved, speed is important to protect your cash flow. Most insurers aim to provide compensation promptly, often within a few weeks. The exact timeline depends on the insurer’s processes and the complexity of the claim. For instance, credit insurers may require documentation of invoices, communications with the debtor, and proof of loss before processing the claim.
Yes, having trade credit insurance can improve your ability to secure financing. Many banks and lenders view insured receivables as a lower-risk asset, which can increase their willingness to offer funding or provide more competitive lending terms. This is because the insurance lowers the risk of non-payment, offering security to both the business and the lender.
Several leading providers cater to small businesses, offering tailored trade credit insurance solutions. Companies like Allianz Trade, Coface, and Chubb provide options designed for SMEs, including coverage for single risks or comprehensive policies. It’s worthwhile to compare providers based on their expertise, claim handling process, and additional services like credit monitoring and debt collection to match your business needs.
To underwrite a policy and monitor risk, insurers typically require:
Insurers may also assess industry trends and economic conditions to determine coverage limits and terms.
For B2B businesses who want to get paid instantly while offering flexible payment terms.
For trade customers who want to increase their purchasing power while keeping control of their cashflow.
