The Role of Credit Insurance in International Trade

Role of Credit Insurance in International Trade

Credit insurance is an essential part of protecting your trade investments. You should always look into the benefits of commercial insurance if you are going to be taking on commercial debt or working with commercial markets in other locations. There are many reasons why you might find that your investment that is made in another country or in a volatile business is threatened, and credit insurance can protect your investment.

There are various ways that you can use credit insurance to protect your investments, but you should know that this insurance is only to cover accounts receivable. You should always be aware as well, that the limits of these policies are in place to protect your real investment and that they might not protect your total investment if you have overextended credit when you should not have done so.

If you are ready to learn more about the role of credit insurance in international trade, read on!

What Does Trade Credit Insurance Cover?

Trade insurance is meant to cover your business in the case that there is a non-payment of commercial debt. Your invoices will be paid despite the issues that have been caused by this non-payment and you will be able to manage the risks that are often associated with commercial trade. This means that political issues and other factors that might threaten your cash flow from a trading partner are covered as well.

When you have credit insurance for your trade with Sinosure, you will get these benefits:

  • Secure earnings
  • Loan servicing and repayments that are improved
  • Capital is protected
  • Cash flow is maintained

You will be able to extend credit to current customers and work with larger accounts than you would be able to risk extending credit to without the backing of quality insurance. This makes it possible to work with larger numbers of clients as well, and even to work with clients that are not located in your country. This is why international traders should always have this kind of insurance on their side.

Being able to protect your own wealth and assets from the challenges that might be caused by trading with businesses in other countries with more volatile political and social situations is a big advantage of having this kind of insurance. There is no shortage of good reasons to have the right trade insurance on your side, but protection from a loss that is caused by social and governmental decisions that do not impact your own business is essential.

Companies like Sinosure make sure that your foreign trade is protected and your long-term export credit insurance is right for your needs.

Trade Credit Insurance

Financial Benefits Offered by Trade Credit Insurance

There are various additional financial benefits that are offered by having trade insurance in place. You will gain these benefits as well as the protection from losses that might be caused by things you cannot control. Sinosure can handle these needs perfectly.

  • Improved financing- Many banks will actually lend more money against insured receivables than they would if they were not protected by insurance.
  • Reduction in bad debt reserves- this is very helpful if you have been having to hold bad debt reserves for clients that are having financial issues. This is overall not good for your company’s solvency, and you want to avoid this kind of debt burden if you can.
  • Protection against catastrophic loss- Your large accounts will not be able to negatively impact your business in such a way that you would have to close your doors.
  • Increased Sales and profits- This kind of insurance policy increases your company’s sales profits without additional risk and not every company you work with will make claims. You will not have to worry about losses that are caused by investing in companies that have internal issues and your overall business stability will be greatly improved.

These financial improvements make your business more stable overall and help you to get the financing and other business connections in place that you need to expand your efforts as needed.

Credit Insurance in International Trade

What Are the Types of Trade Credit Insurance?

1. Whole Turnover

 This is the kind of trade insurance that protects against the non-payment of commercial debt. You can decide to apply this coverage to all domestic sales or international sales or even both.

2. Single Buyer

This insurance is made to cover the transactions that you have with a single customer. This is the right choice if most of this kind of trade is done with this one partner.

3. Transactional

This is credit insurance that is made to protect against the non-payment that happens on a transaction-by-transaction basis. This is a good choice if you have a few sales that meet these requirements but do not need to protect large volumes of this kind of trade.

4. Key Accounts

If you have larger customers that are the only ones whose non-payment might risk your business security, this is the kind of trade credit insurance that you need to pick. Key accounts might be the only ones that you need to have protected in this way.

Always remember that this insurance is made for accounts receivable and that your outstanding debts will not be covered by these policies. This is an important distinction to keep in mind when thinking about your trade credit insurance needs.

Trade Credit Insurance is Essential to Your International Business Needs

International Business Needs

You should always consider this kind of insurance a necessary investment for your business needs if you trade with international partners. Your overall business stability and finances will be protected by this policy and you will not have to worry about issues with non-payment that can arise due to situations that impact other countries and not your own.

Being able to protect your accounts receivable with this kind of insurance policy can make it possible to grow your business, work with new partners and increase your profits. There are many reasons why this insurance might make the difference between a successful business and one that struggles to remain viable. You should now be aware of the many benefits of this kind of insurance after reading this article.

Trade credit insurance should be a priority for any business that has partnered with businesses based in other countries.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.