Why a small business absolutely needs a trade credit insurance

A trade credit insurance policy is absolutely a must for most businesses. However, it is prudent to get this in hand, especially if you are running a small business. The trade credit policy allows companies to feel secure in extending credit to its current customers, or to pursue new, larger customers that would have otherwise look too risky.

Risk is a big factor for a small business or a startup, because at the initial stages of being in business you will want to have an aggressive approach and credit problems are bound to restrict you on your growth path. This is why, it is important to have a trade credit insurance in hand to safeguard your risky decisions, in case something untowardly happens.

What does a trade credit insurance coverage do?
The trade credit insurance policy gives you protection by allowing you to increase sales to grow your business with existing customers. As an insured company, you can can sell on open account terms where previously you may have been restrictive or only sold on a secured basis. This works as a major competitive advantage for exporters and small businesses. Credit insurance is certainly not a substitute for judicious credit management. But, this is the foundation on which the business decisions rest. Credit insurance goes beyond indemnification and does not replace a company’s credit practices, but rather supplements and enhances the job of a credit professional.

What does a trade credit insurance policy cover?
The trade credit insurance protects businesses from non-payment of commercial debt, in simple terms. But, it is a general thought and in detail the insurance gives the following coverage:

  • It covers your business-to-business accounts receivable. If you do not receive what you are owed due to a buyer’s bankruptcy, insolvency or other issue, or if payment is very late, the trade credit insurance policy will pay out a percentage of the outstanding debt.
  • With trade credit insurance, you also get a change to mitigate commercial and political risks of trade that are beyond your control.
  • The trade credit insurance will secure your business position by extending more credit to current customers or pursuing new, larger customers that would have otherwise seemed too risky.

What are the different types of trade credit insurance?
There are broadly four different types of trade credit insurance, which are:

  • Whole Turnover: This trade credit insurance protects you against non-payment of commercial debt from all customers. Depending on the coverage you take, you will get coverage for all domestic sales, international sales or both.
  • Key Accounts: This coverage allows you to choose to insure your largest customers whose non-payment would pose the greatest risk to your business.
  • Single Buyer: This is a coverage that allows you to insure against potential defaults from just one or two risky customers. If most of your transactions are with one or two customers, and you find them risky, then getting a trade insurance for those transactions will be prudent.
  • • Transactional: This coverage offered by a trade credit insurance protects you against non-payment on a transaction-by-transaction basis and is best for companies with few sales or only one customer.

The cost of your policy and your coverage in case of the above types will vary depending on the type of coverage you choose, your industry, your annual revenue that needs to be insured, your history of bad debts, your current internal credit procedures and your customers’ creditworthiness, among other factors. So, when looking to get the best trade credit insurance policy in Mumbai or anywhere else in India, speak to your agent to decide on the best coverage from the start.

A good agent like Akshar will always look closely at your business and its every aspect to help you decide on a trade credit insurance coverage, suitable for your business. No force fit works here and from the word go getting the right assistance is key to getting the right insurance policy for your small business.

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