What is trade credit insurance?

Trade credit insurance is a type of property and casualty insurance used to insure payment for goods sold on credit terms, generally less than one year. Over the life of the policy, credit limits for buyers may change, who is covered may change and buyers are usually monitored to ensure they maintain their credit rating.

How does trade credit insurance work?

If a policy is in place and a buyer, for whatever reason, fails to pay for goods in the time period specified in the terms of sale, the insurance underwriter pays the insured a percentage of the receivables amount and then attempts to collect the debt on their own, assuming that risk. As with factoring or Asset Backed Commercial Paper, the receivables are never covered 100% in order to provide a premium to the buyer of that risk.

What kinds of risk are insured?

The largest risk that is insured is simply failure to pay which can be tied to many factors that you can not anticipate, recognize or manage.

What does trade credit insurance cost annually?

The cost of premiums vary based on several factors, including how many buyers are being covered, their credit limits, the credit risk of the buyers and their respective countries and whether the premium is based on a percent of sales or percent of receivables.

Can I insure specific buyers?

Yes. Policies can be written for a group of buyers or an individual buyer.

Can I insure a buyer in another country?

Absolutely. Because risks vary by country and buyer, sometimes a firm will write separate coverage for an individual buyer and another policy for a group of buyers.

What is political risk?

Political risk is associated with the country in which your buyer does business and includes the risks that assets in a country will be nationalized by the government, the national currency is devalued, the government is overthrown or civil unrest occurs, any of which can cause economic turmoil and therefore problems for your buyer.

Does trade credit insurance cover political risk?

Yes, policies can be written to cover political risk, depending on the country with which you are looking to conduct business.

Does trade credit insurance cover terrorist attacks?

Terrorism is covered under political risk insurance.