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Trade Credit Insurance

Trade Credit Insurance Insuring you against your buyer failing to pay under the credit terms agreed, due to commercial and political events beyond their control.


Trade Credit Insurance in Thailand

What is Trade Credit Insurance?

Trade Credit Insurance, also known as credit insurance or export credit insurance, is a risk management tool designed to protect businesses against the financial risks associated with selling goods or services on credit terms. It provides coverage for non-payment or delayed payment by buyers, whether they are domestic or international customers. Trade Credit Insurance is particularly valuable for businesses that extend credit to customers and want to safeguard their accounts receivable against the risk of default.

Key features of Trade Credit Insurance include:

Credit Risk Mitigation: Protection against the risk of non-payment or delayed payment by buyers due to insolvency, bankruptcy, or protracted default. The policy helps mitigate the financial impact of these credit risks.

Global Coverage: Coverage for both domestic and international trade transactions. Businesses engaging in cross-border trade can use Trade Credit Insurance to protect against payment risks associated with foreign buyers.

Policy Customization: Policies can be tailored to the specific needs of the business, covering all or a selected portion of the accounts receivable. Businesses can choose coverage based on specific customers, markets, or products.

Risk Assessment: Insurers often conduct a thorough assessment of the creditworthiness of a business’s buyers. This assessment helps determine the terms and conditions of coverage, including the credit limits for each buyer.

Sales Expansion: Trade Credit Insurance enables businesses to confidently extend credit to new customers and explore new markets without the fear of financial loss due to customer default.

Enhanced Borrowing Capacity: With insured accounts receivable, businesses may have improved access to financing. Lenders may view insured receivables as lower-risk collateral, potentially increasing borrowing capacity.

Policy Flexibility: Policies may include coverage for various risks, such as insolvency, political risk, currency inconvertibility, and pre-shipment risk. The coverage terms can be adjusted to align with the specific risks faced by the business.

Claims Settlement: In the event of non-payment, the insured business can file a claim with the insurer. If the claim is valid, the insurer compensates the business for the covered amount, helping to offset the financial loss.

Risk Monitoring and Management: Trade Credit Insurance providers often offer risk monitoring services to help businesses assess the creditworthiness of buyers in real-time. This proactive approach allows businesses to manage risks more effectively.

Trade Credit Insurance is valuable for businesses of all sizes and industries, providing a safety net against the uncertainties associated with credit sales. It supports a more secure and resilient approach to trade and helps businesses navigate the challenges of the global marketplace.

Things to consider with Trade Credit Insurance

When considering Trade Credit Insurance, there are several additional aspects and best practices to be aware of:

Policy Exclusions: Review the policy exclusions carefully. Certain events or circumstances may be excluded from coverage, such as willful misconduct, fraud, or disputes unrelated to the buyer’s creditworthiness.

Deductibles and Waiting Periods: Understand any deductibles or waiting periods associated with the policy. Some policies may have waiting periods before coverage begins, and deductibles may apply before a claim is paid.

Credit Limits and Buyer Approval: Work closely with the insurer to establish appropriate credit limits for each buyer. The insurer typically assesses the creditworthiness of buyers, but businesses may also have input into this process.

Continuous Monitoring: Continuously monitor the creditworthiness of buyers throughout the policy period. Changes in a buyer’s financial condition or other risk factors may impact credit limits and coverage terms.

Policy Renewal and Adjustments: Regularly review and renew Trade Credit Insurance policies. As business conditions evolve, adjustments to coverage terms, credit limits, and other policy details may be necessary.

Claims Process: Familiarize yourself with the claims process. In the event of non-payment by a buyer, prompt and accurate filing of claims is crucial. Understand the documentation required for a successful claim.

Policy Costs and Premiums: Evaluate the costs associated with Trade Credit Insurance, including premiums and any additional fees. Understand how premiums are calculated, as they are often based on factors such as sales volume and the level of risk.

Policy Duration: Determine the appropriate duration for the policy. Trade Credit Insurance can be short-term or ongoing, depending on the nature of the business and the expected duration of credit relationships.

Coordination with Credit Management: Integrate Trade Credit Insurance into your overall credit management strategy. While insurance provides protection, effective credit management practices also play a vital role in minimizing credit risks.

Review of Market and Economic Conditions: Stay informed about market trends and economic conditions, both domestically and internationally. Changes in economic conditions can impact the creditworthiness of buyers and overall trade risks.

Legal and Regulatory Compliance: Ensure that your Trade Credit Insurance policies comply with legal and regulatory requirements, both in the country of operation and in the jurisdictions where your buyers are located.

Insurer Reputation: Choose a reputable and financially stable insurer. The financial strength and reputation of the insurer are critical factors in ensuring that claims will be honored and that the insurer will provide reliable risk assessments.

Trade Credit Insurance is a strategic tool for businesses seeking to manage credit risks and protect their cash flow. By understanding the nuances of the policy and working collaboratively with insurers, businesses can enhance their risk management capabilities and navigate the complexities of global trade more effectively.




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