Book contents
- Frontmatter
- Contents
- Foreword
- Introduction
- Disclaimer
- Chapter 1 What is trade?
- Chapter 2 What is trade credit insurance?
- Chapter 3 Product types
- Chapter 4 Risk types
- Chapter 5 Typical set-up of a trade credit insurance contract
- Chapter 6 Premium, the price for cover
- Chapter 7 Day-to-day policy management
- Chapter 8 Buyer risk underwriting in trade credit insurance
- Chapter 9 Debt collection
- Chapter 10 Imminent loss and indemnification
- Chapter 11 Renewal, expiry, termination of a policy
- Chapter 12 Single risk business
- Chapter 13 The single risk insurance market: Private and public players
- Chapter 14 Reinsurance of Trade Credit Insurance
- Trade Credit Insurance resources
- Glossary of trade credit terminology
Chapter 7 - Day-to-day policy management
Published online by Cambridge University Press: 18 January 2018
- Frontmatter
- Contents
- Foreword
- Introduction
- Disclaimer
- Chapter 1 What is trade?
- Chapter 2 What is trade credit insurance?
- Chapter 3 Product types
- Chapter 4 Risk types
- Chapter 5 Typical set-up of a trade credit insurance contract
- Chapter 6 Premium, the price for cover
- Chapter 7 Day-to-day policy management
- Chapter 8 Buyer risk underwriting in trade credit insurance
- Chapter 9 Debt collection
- Chapter 10 Imminent loss and indemnification
- Chapter 11 Renewal, expiry, termination of a policy
- Chapter 12 Single risk business
- Chapter 13 The single risk insurance market: Private and public players
- Chapter 14 Reinsurance of Trade Credit Insurance
- Trade Credit Insurance resources
- Glossary of trade credit terminology
Summary
Companies invest in trade credit insurance for a variety of reasons, including:
• Sales expansion – If receivables are insured, a company can safely sell more to existing buyers, or go after new buyers that may have been felt to be too risky without insurance.
• Expansion into new international markets.
• Better financing terms – In many cases a bank will lend more capital against insured receivables and may also reduce the cost of funds.
• Reduce bad-debt reserves – This frees up cash for the company. Also, trade credit insurance premiums are tax deductible, but bad debt reserves are not.
• Indemnification from buyer non-payment.
The process of insuring accounts receivable involves understanding a company's trade sector, risk philosophy, business strategy, financial health, funding requirements and internal credit management expertise. The ultimate goal is not only indemnify losses incurred from a trade debt default but also to help the insured avoid catastrophic losses and grow their business profitably. The key is having the right information to make informed credit decisions and therefore avoid or minimize losses.
A trade credit insurance policy does not replace a company's credit practices, but rather supplements and enhances the job of a credit professional. The best credit insurers will invest heavily in the development of proprietary credit and financial information, and also will employ risk analysts, as well as industry- and countrybased underwriters, in many geographic locations in order to have a close physical presence to its customers’ buyers. The better credit insurers will also analyse payment information about the insured buyers to identify early signs of financial trouble.
At the start of negotiations the would-be insured describes the risk structure of the business it wants to insure in a document known as the application form. This contains all the details on the insured's own business and about its buyers that are required for assessing the risk profile. The details on the insured itself serve not only to categorise the company in terms of sector, products, market standing etc. but also assess the subjective risk, aspects such as professionalism, management quality and mentality and solvency. The other side of the story is the risk profile of the buyer portfolio. To assess these details are needed on the potential buyers, such as their names, locations/domiciles, numbers, size, turnovers and outstanding receivables, terms of payment and payment periods, payment history, defaults, etc.
- Type
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- Information
- A Guide to Trade Credit Insurance , pp. 45 - 50Publisher: Anthem PressPrint publication year: 2015