All forms of trade involve 'Credit risk'. From the point of view of the supplier, many companies deal on credit terms with purchasers within their county of domicile and also overseas. Particularly in the current economic situation, it is not unusual for suppliers to find themselves facing customers who are insolvent, default on payments, act fraudulently or are unwilling to accept the goods on arrival. The effects of a major debtor's insolvency or protracted default on a payment can be potentially devastating to any business and may:
- cause a reduction in profit; or
- result in considerable legal expense in recovering the amount owed or goods.
Whether you’re a major international distributor or a small specialist manufacturing business, the impact of suddenly being exposed to bad debt could be devastating and can take even large organisations to the brink by starving them of vital funds.
Trade/Credit insurance is designed to ensure that a company is not adversely or fatally affected by the unforeseen failure of a customer (or customers), but also as a management tool to the flow of business decisions.
- Protection of receivables – non-payment of a debt owed by a client exposes a company to a high risk that could lead to a loss of profitability and harm cash flow
- Assistance in managing credit risk – The credit Insurers extensive database and knowledge on both local and international businesses help in the management of client credit
- Cost saving – By using Trade Credit Insurance, companies save expenses such as: information, analysts, collection expenses, provisions for bad debt etc
- Leveraging credit insurance for financing needs – Financial institutions look favourably on securing a company’s receivables, some of the benefits include increased financing for the policyholder, comfortable financing terms and improved financing ratios on the balance sheet
- Increasing revenues and profitability – Credit insuring both local and international clients often contributes to increased sales that would not necessarily be conducted in the absence of credit insurance. Credit Insurance in some cases allows businesses to sell on extended terms and to sell to customers that they had previously not sold to due to a lack of information on that business; and
- Access to professional debt collection services – As part of most policies Credit Insurers contribute to the cost of debt collection for insured debts.
From the purchaser’s perspective, the contract of sale should be specific if the date for shipping goods is vital. A letter of credit can specify a latest shipment date and if this is not met, this may allow the importer clear legal grounds for refusing payment.
For purchasers, another safeguard when dealing with a new supplier is to thoroughly investigate their reputation and standing prior to orders being placed. Where a purchasing agent is used, similar checks and close supervision may avoid later costly mistakes or issues. An independent superintendence company to inspect the goods prior to shipment may be advisable, and will establish if there are any problems at an early stage, when the issue is less expensive to rectify.
Our Brisbane Insurance Brokers can help you get the right insurance cover by assessing your specific needs and recommending the best value insurance solution for your business, whilst still maintaining the highest standard of cover.
Contact us today to get a Trade Credit & Bonds Insurance Quote.
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