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For companies operating in the business-to-business market, customer credit is a fact of life. Selling goods and services on open terms is not only a necessary cost of business, it is a key factor to increasing sales as well as profits.
Nevertheless, open terms come with a price- RISK. With one default, all of the profits attributed to increased sales can be totally eliminated. In today's competitive business environment, these lost profits cannot easily be reoccupied. In addition to the loss of profit, a large default may lead to cash flow disruptions, which can in turn lead to additional defaults, and may result in the overall failure of a business.
Trade credit insurance is a business insurance product that indemnifies a seller against losses from non-payment of a commercial trade debt. With trade credit insurance in place, the seller/policyholder can be certain that non-disputed accounts receivables will be paid by either the debtor or the credit insurer.
Credit insurance is not only about avoiding bad debt, but also about securing growth.
A Credit Insurance Policy allows companies to feel secure extending more credit to current customers, or pursuing newer and larger customers that would have otherwise seemed too risky. With credit insurance in place, an insured company can feel comfortable selling on open credit terms and will gain a major advantage over its competitors. This will allow companies to increase sales and increase profits.
The ultimate goal of a Credit Insurance Policy is not to simply pay claims, but rather to effectively help policyholders avoid unforeseeable losses. Often, a customer is unable to pay as a result of exchange rate fluctuations, political instability, insolvency or other factors that were not anticipated. If an unforeseeable loss should occur, the indemnification aspect of the credit insurance policy protects the policyholder.
In these cases, policyholders would file a claim with support documentation, and the insurer would pay the policyholder the claim benefit typically within 60 days from the date of loss.