Accounts Receivables Protection and Trade Credit Insurance FAQs

MyTPG Blog
Published: 08/2/21 5:00 AM

Title image for Accounts Receivables Protection and Trade Credit Insurance FAQs showing a pair of hands next to a calculator, money, a set of keys and a coffee mug. The left hand is signing some "credit" and "debit" documents.

Accounts Receivables Protection and Trade Credit Insurance FAQs

This article was published on: 08/2/21 5:00 AM




Do you want additional sales opportunities? Equally important, do you want to increase your customer’s purchasing power? Obviously, one common solution is to extend credit to your customers. But how can you do that without risking your accounts receivables? Indeed, there is little room for error. For example, one customer late payment may stress your cash flow beyond limits.

Naturally, this is where smart businesses take advantage of Trade Credit insurance, also called credit insurance or export credit insurance. It provides the accounts receivables protection you need because it transfers the risk against nonpayment.  

No doubt, you have many questions. In any case, we are here for you. What’s more, check out these Trade Credit insurance frequently asked questions (FAQs).

Trade Credit Insurance FAQs – Accounts Receivables Protection

  1. What services will Trade Credit insurance provide my business?
  2. How is Trade Credit insurance designed?
  3. Can I customize Trade Credit insurance policies?
  4. How do credit limits help me and my customers?
  5. Is Trade Credit insurance only for international exports?
  6. Is there a way to protect against things like terrorism, war, or actions by local governments?
  7. What are the different types of Trade Credit insurance policies?
  8. How much will one of these Trade Credit insurance policies’ cost me?

1. What services will Trade Credit insurance provide my business?

Trade Credit insurance indemnifies losses. Yet, it also can help to prevent future losses from occurring in the first place. For this reason, to make that happen, insurers provide certain services to your business. As a result, your policy may include some or all of these:

  • Monitoring the creditworthiness of your customers
  • Foreign market risk reports outlining potential issues
  • Outstanding accounts receivable management
  • Procedures designed to be proactive with debt collection

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2. How is Trade Credit insurance designed?

Trade Credit insurance will primarily help you in two situations. When you have nonpayment or late payments, or client/customer bankruptcy or similar. This typically includes nonpayment due to situations outside the control of either the buyer or the seller. This applies to either domestic or international commerce.

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3. Can I customize Trade Credit insurance policies?

The short answer is: Yes! They can be tailored to your specific needs. Non-customizable (standard) policies exist, however, they are mostly for small and medium-sized businesses.

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4. How do credit limits help me and my customers?

A financial stability analysis is performed during the underwriting process. Then, customers are given a credit limit. The credit limit represents the indemnified amount the insurance company will provide if the customer doesn’t pay.

At times, the insurance company may receive negative information about a buyer. This may move them to change the coverage limits or cancel the coverage altogether. It’s also good to note that you, the business, can request additional coverage of specific buyers.

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5. Is Trade Credit insurance only for international exports?

No, domestic credit insurance policies exist which usually have lower premiums and are much simpler.

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6. Is there a way to protect against things like terrorism, war, or actions by local governments?

Absolutely! This is what is called political risk. It is something that occurs outside the control of either you or your buyer. This results in that stops one or both parties from completing their end of the deal. If your insurer protects you against export risks, they will probably also cover political risk.

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7. What are the different types of Trade Credit insurance policies?

Here are 3 different types of Trade Credit insurance policies:

  • Whole turnover policy: This type includes all buyers. It insures against nonpayment. You decide whether to insure all domestic sales, all export sales or both.
  • Key account policy: Here is where some of the customization options come in. With this type of policy, you can insure key accounts. It doesn’t have to cover all receivables.
  • Single buyer policy: This policy type can protect you for accounts receivables from a particular client – typically for a very large client where exposure is disproportionate.

As you can see, there are several types of policies that can handle different needs. A couple of other options include policies with high thresholds or retentions and also transaction-by-transaction policies.

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8. How much will one of these Trade Credit insurance policies’ cost me?

Varying factors will affect the policy cost. Obviously, it depends on the insurer and on which risks are covered. Other factors that will affect your premiums are whether you are insuring every transaction or just a single one.

For the most part, industry-standard actuarial methods and techniques are used to calculate premiums. The rates are a percentage point of the company’s whole turnover.

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We Would Love to Help You

Your insurance portfolio cannot be considered complete without Trade Credit insurance. Contact us today by calling 909.466.7876 and let one of our experts work with you to find the perfect coverage. You can find more information here for you to keep succeeding in your business’s short and long-term goals!