Typical trade credit insurance cost: is it worth it?

Read on to explore whether credit trade insurance is worth it for your business, and how it can help you avoid dire financial straits.

Credit insurance is the best way for companies to protect themselves against the financial consequences of unpaid invoices. No matter the credit terms you lay out for your clients, there is always the risk that they are going to pay a bill late, or worse not pay at all.

In Australia, 47% of invoices are paid late, which is especially catastrophic for medium and large businesses that are dealing with significant invoice amounts. On the other hand, SMEs may be operating on tighter budgets and have less wiggle room in terms of cash flow, so credit insurance can be useful for them as well.

Delayed payments can compromise your cash flow at a minimum, and grind your business to a screeching halt in the worst of cases. And what happens when a debtor defaults on their bill or files for bankruptcy? As one of their suppliers or contractors, you are very likely to find yourself at the back of the queue when it comes time for the company's assets to be liquidated.

Read on to explore whether credit trade insurance is worth it for your business, and how it can help you avoid dire financial straits.

How much does trade credit insurance cost?

With Coface, your premium is calculated based on your turnover (the net sales figure you pull in as a company). Your past transaction history and the buyers with which you are trading are also taken into account. In general, the minimum premium for a standard term is approximately $16,000, though it can vary based on the above criteria.

When you apply for a quote, a two-part process will follow. First, the insurance company will assess the type of trade you are involved in and your overall business profile to determine a policy rate and terms. Then, they will analyse your trading partners and their financial strength to determine the credit limit coverage that will be available to you.

When is trade credit insurance the right choice for my company?

In most cases, insuring against unpaid invoices and your trading partners' insolvency is an essential preemptive move. However, there are specific situations in which trade credit insurance is especially valuable. These include:

1. If you are planning on growing your business or expanding into new markets

When companies begin navigating uncharted territory, a number of questions are likely to arise, and the endeavour can feel uncertain or risky. However, when they partner with an insurance provider like Coface, they can gain access to valuable information about potential customers, markets, and territories.

For example, Coface has eight underwriting centres and 10 information centres worldwide that conduct research on the credit risk associated with specific countries, sectors, and companies you may encounter as you grow and expand. This information is continuously updated in real-time, so you can use the most recent data to make calculated, well-informed business decisions.

In these situations, knowledge really is power: Coface's database of 140,000 Asia Pacific Buyers, complete with an analysis of each one's creditworthiness, can act as a guide when it comes to choosing strategic partners as you enter new markets and take on new business.

2. If you conduct trade domestically

While international trade may sound like a riskier endeavour at first glance, there are a number of risks associated with domestic trading as well. Even if a company seems rocksteady and you've been working with them for years, insolvency or bankruptcy can strike at any time.

Since 2017, the rate of bankruptcy in Australia has decreased, but it's important to prepare for the unexpected. Equipping your business with a trade credit insurance policy will help preserve your cash flow in the event that one (or more) of your trade partners experiences financial trouble, even if their issues don't extend all the way to insolvency.

3. If you conduct trade internationally

Aside from the above-mentioned benefits of purchasing trade credit insurance including valuable market intelligence and cash flow protection a provider like Coface can help you navigate the complicated waters of cross-border debt collection.

Cultural norms and language barriers, not to mention local laws and regulations, make collecting debts outside the Australia exceedingly complicated in many cases. When you join forces with a specialist like Coface, you can enjoy peace of mind knowing that a team of experts will be available to support you whenever the need for cross-border debt collection arises.

Not only that, but entrusting a professional to handle the situation and the cultural context that comes with it is the best way to ensure that you do not damage your relationship with the client, should you wish to keep doing business with them once their debt has been settled.

Additional benefits of trade credit insurance

If underwriting your cash flow is not your main concern, there are many more reasons why purchasing credit insurance is worth it!

  • Did you know that banks are more lenient with companies that have secured receivables? This means that credit insurance can actually help you get more favourable credit options and negotiate excellent borrowing terms on business loans.
  • If time is money, every minute you spend chasing down partners who haven't paid an invoice is a missed earning opportunity for your company. Let your insurance company take care of collecting payments for you so you can focus on what you do best.
  • When your finances are underpinned by trade credit insurance, you have the freedom to offer more flexible payment terms, which is a gesture that partners and suppliers often appreciate.

Building a policy that's right for you

At Coface, we have a wealth of experience serving a wide range of industries, each one with their own needs and concerns: from construction and manufacturing to media and recruitment, we know exactly how to protect your business and reduce your financial risk exposure. To find out how Coface can support your company's growth and success while providing you with invaluable peace of mind, contact us today.