Trade Credit Insurance: A Boon for Financiers

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Trade Credit Insurance A Boon for Financiers
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Trade credit insurance (TCI) is a type of
insurance that covers the risk of non-payment by
buyers of goods or services. It is a useful tool
for financiers who provide funding to businesses
based on their trade receivables. In this blog,
we will explore how TCI can benefit financiers
and what options are available in the market.
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Why do financiers need TCI?
Financiers who offer trade finance solutions to
businesses, such as invoice discounting,
factoring, or supply chain finance, face the risk
of default or delay in payment by the buyers of
their clients. This can affect their cash flow,
profitability, and credit rating. Moreover, if
the buyers are located in foreign countries,
there is also the risk of political or economic
instability that can disrupt the payment process.
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TCI can help financiers mitigate these risks by
providing them with a reimbursement guarantee in
case of non-payment by the buyers. TCI can also
help financiers expand their portfolio of clients
and offer them more competitive terms and rates.
By having TCI in place, financiers can reduce
their bad debt provisions, improve their
borrowing and financing options, and increase
their profitability.
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How does TCI work?

• The financier obtains a TCI policy from an
  insurer that covers the trade receivables of its
  clients.
• The financier provides funding to its clients
  based on their invoices or other trade documents.
• The financier pays a premium to the insurer based
  on the turnover and credit risk of the buyers.
• The financier monitors the payment status of the
  buyers and reports any overdue or disputed
  invoices to the insurer.

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• If a buyer fails to pay within the agreed credit
  period due to insolvency, bankruptcy, protracted
  default, or political risk, the financier files a
  claim with the insurer.
• The insurer verifies the claim and pays an agreed
  percentage of the invoice amount (usually
  75-95) to the financier.

What are the types of TCI policies?
There are different types of TCI policies
available in the market, depending on the needs
and preferences of the financiers. Some of the
common types are
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Whole turnover policy This policy covers all the
trade receivables of the financiers clients,
regardless of whether they are domestic or
international. This policy provides comprehensive
coverage and simplifies the administration
process for the financier.
Key buyers policy This policy covers only
selected buyers of the financiers clients who
represent a significant share of their turnover
or pose a high credit risk. This policy allows
the financier to focus on its key accounts and
tailor its coverage accordingly.
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Single buyer policy This policy covers only one
buyer of a financiers client, who may be a new
or strategic customer. This policy enables the
financier to enter new markets or sectors with
confidence and offer attractive terms to its
clients.
Top-up policy This policy covers only a portion
of the trade receivables that are not covered by
another TCI policy or credit limit. This policy
enhances the existing coverage and allows the
financier to increase its exposure to certain
buyers.
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Who are the leading providers of TCI? The
leading providers of TCI include carriers such as
AIG, Zurich Insurance Group, Chubb, Coface,
Allianz Trade, and Atradius. The Export-Import
Bank of India (EXIM), Indias official export
credit agency, also provides credit insurance
that protects foreign accounts receivable against
insolvency and political risk.
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Conclusion TCI is a valuable risk management
tool for financiers who deal with trade
receivables. It can help them protect their cash
flow, enhance their profitability, and grow their
business safely. Financiers can choose from
various types of TCI policies that suit their
requirements and preferences. To avail TCI,
financiers can contact reputed insurers or export
credit agencies that offer this service.
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