Trade credit insurance is an important parameter that can guide you through your trade credit policy and reduce significant risks in receiving your funds.
Today’s global business environment is very competitive and exporters who supply niche markets or behave still like holding a monopoly in the market are very rare cases. When an importer can find identical products or services from another manufacturer or distributor which can offer the same delivery conditions and delivered prices then the next thing to press upon is the payment terms. The sellers many times are pressed to offer open account terms in order not to loose the customer. At this stage many sellers make a mistake either because the do not have sufficient data to value the financial status of their customer or because the decision is made by a Sales Manager whose performance is evaluated only based on the sales the company does and not on the profit etc.
An important service that exists and can be used by the seller as a tool when facing such a position is contacting a credit insurance company and requesting its services by supplying it with his customer data and requesting to approve a credit limit. The Credit Insurance company will search in its databases to find financial information for this customer in order to be in a position to reply to the seller and to inform him if his customer position is such for which he can give a credit line and state also which is the credit line the credit insurance company would be willing to insure.
For example, the seller might ask if he can give a credit line of 40k euro or dollars to his customer and the credit insurance company will reply to him if this is possible or if not what is the value of open invoices it can insure or if the financial information is very bad the credit insurance company may reply that it cannot insure any amount for this customer. This is a very important service for global traders which can save them for many financial risks. If the credit insurance company decided to insure his client for a certain amount, then the exporter can suggest the same credit line to his customer and be on the safe side for the full amount. If the exporter decides to suggest to his client a higher amount than the one the credit insurance company is willing to insure then the difference will be a risk that the exporter will have to bear.
Applying credit insurance policy on your customers is a very wise tactic and it can be used not only for international customers but also for domestic. For additional info you may consult the book suggested below: