Trade credit insurance provides cover for businesses if customers who owe money for products or services do not pay their debts, or pay them later than the payment terms dictate. It gives businesses the confidence to extend credit to new customers and improves access to funding, often at more competitive rates. Trade credit insurance is for products and services that are due within 12 months.
Cover can be obtained by companies trading within the UK as well as internationally, and in addition trade credit insurers help their customers manage risk by providing guidance and advice about credit risks and new markets to help businesses expand. Businesses can buy trade credit insurance for their entire portfolio of customers, or for individual accounts.
With trade credit insurance, the policyholder knows their business is protected against both commercial and political risks that are beyond their control knowing that money owed to them will be paid. This helps firms to grow profitably, supporting them at all stages of the business cycle and minimising the risk to them of unexpected customer insolvency.
Trade credit insurers will generally cover two types of risk:
- Commercial risk – the risk that your customers are unable to pay the outstanding invoices because of financial reasons, for example, declared insolvency or protracted default.
- Political risk - non-payment as a result of events outside the policyholder or customer’s control, for example due to political events (wars, revolutions); disasters, (earthquakes, hurricanes); or economic difficulties, such as a currency shortage so are unable to transfer money owed from one country to another.
In 2014, ABI members alone supported business turnover worth over £315bn last year through the provision of trade credit insurance.
For more information about how to buy trade credit insurance, speak to an insurance broker through the British Insurance Brokers' Association (BIBA).