Trade Credit Insurance also known as Export Credit Insurance is a type of insurance exclusively for businesses that conduct international trade. TCI covers foreign accounts receivable from international trade transactions including specific political risk factors. It is an excellent risk management tool and widely used in international business transactions.
There are many types of trade insurance products and services that are offered by both private specialized commercial risk companies and government agencies. The most common categories of export insurance products and services include: Accounts Receivable Insurance, Medium Term Trade Credit, A/R Secure (minimum annual sales stipulations), Top Accounts/Single Buyer Policies, Comprehensive Domestic & Export Credit Insurance, Domestic, Foreign, Global Accounts Receivable Insurance (includes coverage for foreign currency transfer related to exchange authorities) and Bad Debt Collection Services.
Choosing the right coverage depends upon a business’ size, export sales volume, trade partners’ financial risk assessment, the percentage of export sales relative to domestic sales and specific country issues (risk factors related to trading partners’ country of business residence).
What Are the Benefits of Trade Insurance?
Trade Insurance has many benefits for a business as a whole. Not only does export insurance provide “protection” for default payments thus managing a primary element of international trade but it also ensures that a business has more working capital while increasing potential sales growth. Exporters often find that one of the main issues in closing an international deal is not only price, product/service quality but payment terms. The companies that can provide clients with the most flexible payment terms are often the ones that close the business.
However, trade credit insurance also has a few downsides that one needs to consider.
Downsides of Trade Insurance
Export credit insurance is often quite costly for smaller businesses. While price and product/service offerings vary considerably by credit insurance provider, the cost of this type of insurance can be substantial. Obviously, this additional expense cuts into profit margins. Furthermore, TCI does not cover payments fully- there is a percentage basis of the total amount that is included depending on the type of policy. Finally, choosing the right provider is essential to getting the coverage, quality of service and country-specific support.
If you would like to learn more about the most reputable Trade Credit Insurance private companies and government agencies by region, contact ExportsInfo.