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How trade credit works

The cost of a credit insurance policy is based on a business turnover. Typically it is a small percentage of insured sales and can depend on a number of variables, including trading history and historical debt loss of the company, the trade sector and their customer base.

As part of the policy, the credit insurer will monitor each of a business insured customers, assigning them each a credit limit, which is the amount the insurer will protect them if that insured customer fails to pay.

Monitoring of a business’ customers can be done using a variety of sources, for example:

  • visits to the customer
  • public records
  • information supplied by other policyholders that sell to the same customer
  • receipt of financial statements
  • past due reports

At any time during the policy, a business may request additional coverage for trade with any of its customers. The credit insurer will then evaluate the risk of increasing cover and either approve or decline the additional credit limit request, with a clear and timely explanation.

A business can also request at any time a credit limit for a new customer that it would like to start trading with.

Throughout the lifetime of the policy, the trade credit insurer will inform the business of any changes that might impact the financial health of their customers and their ability to pay them for goods or services delivered. They will then establish a plan with their customer to mitigate the risk.

In the event that a customer is not able to pay the business because of insolvency or late payment by their customer, they can claim up to the limit of their policy.