Trade credit insurance – what is it?
Trade credit insurance is a financial solution that allows companies to protect their receivables against the risk of insolvency or delayed payments from counterparties. Under this insurance, a company enters into a contract with an insurance company that undertakes to pay compensation if a counterparty fails to meet its payment obligations. Trade credit insurance covers both domestic and international sales, which is particularly important in foreign trade, where assessing the reliability of business partners is sometimes more difficult.
The main purpose of trade credit insurance is to protect a company’s cash flow and minimize the risk of insolvency or late payments. This gives companies greater financial flexibility and enables them to safely offer trade credit, or deferred payment, to their counterparties. For companies operating in low-margin sectors, where dependence on the timely receipt of receivables is high, trade credit insurance provides important support to stabilize their finances and allow them to continue to grow their business.
With trade credit insurance, companies can more comfortably make decisions on cooperation with new counterparties, as well as develop business in higher-risk markets. While assessing counterparty risks and providing coverage, the insurance company also plays an advisory role, supporting the company in managing financial risks and selecting trading partners. In the event of non-payment, the insurer, following the appropriate procedure, pays compensation, which helps reduce financial losses and maintain the company’s operational liquidity. In the long term, trade credit insurance allows for more stable growth, reduces the need to make provisions for losses due to unpaid receivables, and builds confidence in the company, which is particularly important when dealing with investors and financial institutions.
Frequently asked questions
1 What are the benefits of trade credit insurance?
Benefits include protection against financial losses, improved liquidity and increased business confidence.
2.How does trade credit insurance work?
A company takes out an insurance policy that protects its receivables in the event of insolvency of counterparties. If necessary, the insurer pays compensation for unpaid invoices.
