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Today, most enterprises trade on credit basis. Credit sales are generally open account sales or are backed by some collateral. Export credit guarantee insurance is for the companies selling their goods / services on credit to the overseas buyers.
Credit Insurance is sold to businesses selling to other businesses (B2B) to insure against the insolvency or inability of your customer to pay your invoices. In the credit insurance world your customer is called a “debtor.” This policy protects the insured against risk of non-payment by their buyers.
Why Credit Insurance ?
If your business has one or two very large customers, which might cause your company’s demise if they are unable to pay for your goods and services. If your customer fails to pay because of insolvency or the inability to pay, the credit insurer pays you.
The major insurers have very large databases of credit information on companies and stay on top of changing circumstances on a day-to-day basis. If you have credit insurance and your insurer doesn’t want to insure a particular company, you can work out other alternatives to sell to them other than trade credit. Perhaps cash in advance, or COD.
“Credit insured firms also have access to lower cost and better quality credit information and market intelligence. This saves money on credit reference information and market research”.
- Comprehensive Credit Management solution
- Risk Mitigation
- Open routes to new markets
- Facilitates better terms from bankers
- Advice from experts from their huge database all over the globe
Commercial & Political Risks
- Non-payment or Protracted Default
- Insolvency of buyer
- War and war like situations
- Trade Embargo
- Cancellation of import license
- Default by government owned buyer
- Non-payment due to government restrictions of the host country
- Non-payment due to trade disputes
- Sales to an associate company
- Nuclear Risks
- Loss due to foreign currency fluctuations
The bottom line is when credit insurance makes sense it nearly always pays for itself, either though reduced costs of borrowing, mitigating losses, or providing credit services during these tough times.
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