The risks in trade include political risk, such as a government halting outbound payments during a crisis or devaluing its currency. It can also be the risk of buyer’s insolvency or defaulting on payments.
But for companies engaging in trade, there are ways to insure and protect payments: trade credit insurance, also known as accounts receivable insurance. What’s more, sophisticated organizations can use this coverage to expand business and facilitate growth.
While it can be used for any company with accounts receivable, trade credit insurance has special importance for companies engaging in foreign trade.
How trade credit insurance protects companies
Trade credit insurance protects against the risk that the buyer of goods or services won’t pay the seller. The risks trade credit insurance covers include the following:
- A payor’s insolvency
- Defaulting on payments
- Non-acceptance of goods
- Losses resulting from war or civil unrest
- Currency devaluation
Coverage may begin at the beginning of the contract, when goods are shipped, or when services are rendered or invoiced.
Considering the tight margins in many industries, some business owners may be reluctant to spend on credit insurance. However, in the event of non-payment for goods sold, those thin margins could make it that much harder to overcome that loss.
