Benefits of Trade Credit Insurance

By on April 17, 2014

Issue 73 of Sand and Stone provided an insightful article by John Pititto on Debtor Management. Australian Reliance as an Associate Member of the CMPA felt to complement the process of Debtor Management an overview of an insurance product which enhances this discipline and would be useful to members.

Trade Credit Insurance when partnered with Debtor Management procedures will not only reduce the risk of bad debt but will protect your business in the event you are caught by an unforeseen insolvency or delinquent debt.

Trade Credit Insurance – WHAT IS IT?

Trade Credit Insurance protects against the risk of your Customer not paying you for products or services provided. The policy is designed to protect the bottom line of your Company, allowing you to grow whilst minimising the risk of exposure to insolvency.

How does Trade Credit Insurance Work?

Trade Credit Insurance safeguards your Company against the potential scenario of a Customer failing to pay their trade debts to your Business.

This can occur when a Customer fails to pay a debt within the agreed terms and conditions (i.e. protracted default) or they become Insolvent.

By way of an example, if your Company’s profit margin is 5% and your Customer defaults on an outstanding debt of $100,000 then your business would have to produce a further $2,000,000 of sales to recover the profits lost.

In addition, your cash flow is adversely affected and the day to day operations of the Business are put at risk with the question arising; “How will your Business pay their Suppliers if it has a cash deficit?”

Why should your business have Trade Credit Insurance?

The Construction/Engineering Industry continues to experience a constant flow of Insolvencies which creates a high number of unsecured creditors who have to absorb the bad debt. If they are not able to cover that shortfall then it could eventually lead to their own demise.

You will notice that your Company’s main assets are your trade Receivables. Having a trade Credit Insurance policy, you will be able to protect your existing and future cash flow along with your profits against a bad debt.

Additional Benefits

Supporting role in Sales – trade Credit Insurance helps to provide a more efficient credit management process and provides access to resources which will maximise the recovery of unpaid debts. This combination will allow Credit Managers to concentrate on the development of new Commercial accounts.

Ongoing monitoring of your Customers – All Insurers in the trade Credit Market provide ongoing monitoring of your Customers. this service alerts you to the financial health of your Customers and their ability to pay.

Improved Banking relationships and access to finance
-trade Credit Insurance can potentially help Companies have access to bank funding and better terms due to their receivables being insured. In addition, trade Credit Insurance can be more affordable and easier to manage administratively than operating with Letters of Credit.

The role of Australian Reliance

Australian Reliance is an established team that has over 21 years of experience in the Credit Insurance Industry. Extensive experience in underwriting on a global platform has allowed us to provide greater insight into the variety of solutions available in the Trade Credit and Surety sector.

We can offer services in Risk analysis, program design and placement of the required program combined with ongoing technical support and service. our approach is to identify and establish the right Insurance protection for your Business.

Having a trade credit expert structure a proposal for you will result in a comprehensive program with broad coverage at a competitive price.

Australian Reliance will also assist in maintaining your program, negotiate coverage additions and assist on claims.

For more information contact:

Trade Credit Executive
03 9864 4413
T: 03 9864 4444 F: 03 9867 5110

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