There are all sorts of different types of insurance available to individuals and businesses. While each of these is designed to account for specific situations, what they all share is an end goal of protecting the policy holder in the event of something going wrong.
While many types of insurance policy deal with specific and dramatic circumstances such as theft or property damage, it’s just as important to invest in policies that protect against financial issues. One of the most common forms of this is trade credit insurance, which provides a safety net to businesses in the event of a client failing to pay a debt.
Trade credit insurance (TCI) is a broad form of coverage that protects against bad debts, and unpaid invoices in particular.
What is trade credit insurance?
Trade credit insurance (TCI) is a broad form of coverage that protects against bad debts, and unpaid invoices in particular. As with other types of insurance policy, TCI allows businesses to make a claim in the event of a client refusing to honour their debt, result in a payment that covers some or all of the money owed. This can be particularly useful to Australian companies operating overseas, where they may not have as much information as they’d like on potential trading partners and the risks associated with them.
While non-payment of a debt can often be down to a debtors inability or unwillingness to honour the initial agreement, there is also a wide variety of other situations where TCI can come into play. For example, if an Australian business is exporting a product to a region with political risks – such as the potential for an outbreak of war – TCI makes it possible to secure a payout from an insurer even if the initial client can’t be reached or is unable to provide payment.
Although every business operating internationally should have a comprehensive trade credit insurance policy, the risks are significantly greater for SMEs. This is because any interruptions to cash flow can make it difficult to secure materials and continue operating, leading to bankruptcy in worst-case scenarios. Accordingly, small business owners should be particularly aware of the value of TCI to protect their organisations’ accounts receivable.
What are the types of trade credit insurance
As the needs of each business are slightly different, the best type of trade credit insurance cover for a particular company can vary significantly. A few of the factors to take into account when selecting a policy include the countries being exported to, how much information a business has on its clients’ credit history and other financial factors such as annual turnover.
Here at Coface, we provide a range of different TCI policies that are tailored to the individual needs of various-sized businesses. These include:
- EasyLiner for SMEs. This product is specifically designed for small-to-medium businesses operating both within Australia and Internationally. Typical turnover for this type of TCI is between AU$750,000 and $5 million.
- TradeLiner for mid-sized enterprises. TradeLiner provides a slightly more comprehensive level of protection for businesses with diverse international interests, offering stability against commercial, political and environmental risk. It’s best suited to companies with an annual turnover of AU$7 million or more.
- Coface Global Solutions (CGS) for multinationals. This product is tailored for companies with larger clients across multiple countries, operating with higher turnovers and increased levels of risk. CGS is designed to offer the very best in flexibility, in order to account for the trading differences that can arise between different regions.
In addition to these set types of trade credit insurance, Coface’s Single Risk solution is available for one-off projects. The flexibility of a Single Risk solution makes it easy to tweak a TCI policy based on the particular risks and challenges of a certain market or industry.
Each of these policies is designed to best suit the needs of particular businesses, reducing the risk of unpaid debts impacting cash flow as much as possible. If you’d like to further narrow down the options and ensure you fully understand the trading risks faced by your business, it may also be a good idea to request a Customised Credit Opinion. This involves a full assessment that will provide a comprehensive analysis of the risks of non-payment associated with your customers, making it far easier to select an appropriate TCI policy.
The best type of trade credit insurance cover for a particular company can vary significantly.
Coface’s trade credit insurance expertise
In addition to providing trade credit insurance services and Customised Credit Opinions, Coface also helps Australian businesses exporting overseas by providing experience and expertise.
This starts before any trade agreements are signed, with our team able to provide in-depth analysis on potential trading partners and whether or not they’ll be a good fit. Of particular importance is the credit history of any clients an exporter is considering working with. If our team identifies any red flags, we’ll be able to provide a comprehensive report on the associated risks, allowing business owners to make an informed decision on whether or not to proceed with trade.
While financial history is one of the most important areas our team looks at, it’s also crucial to consider factors such as political instability and environmental risk. A natural disaster or outbreak of war can wreak havoc on international trade partnerships, so we’ll also identify any potential issues unrelated to the financial side of the equation in order to provide a full picture of a potential trading partner.
Finally, Coface provides comprehensive global debt collection services, in the event of an unpaid debt being retrievable. In these situations, our team may be able to recover what is owed without having to go through the full claims and indemnification process.
All of these varied services, from trade credit insurance to debt collection, are designed to help Australian businesses trade overseas with confidence. To find out more about how we can help your company trade safely, get in touch today.