Does Your Business Need Trade Credit?
Trade Credit Insurance (TCI) is an essential tool for companies in these unpredictable times. The essence of TCI lies in managing the inherent risks linked to lending to commercial buyers. The potential threat of non-payment due to unforeseen circumstances, such as bankruptcy, can be mitigated through the protective shield of trade credit insurance.
What is Trade Credit Insurance?
When businesses offer credit to support large transactions, they expose themselves to the risk of non-payment, especially when customers face financial problems or file for bankruptcy. This vulnerability can lead to significant financial setbacks for businesses when the loan is not backed by collateral.
TCI acts as a financial safety net by paying policyholders for unpaid bills and providing businesses with comfort as they offer credit to new or existing customers. They can be confident because they know that, regardless of the client’s financial situation, they will be reimbursed up to the applicable coverage limits. Thus, TCI becomes a strategic tool, allowing companies to expand without incurring excessive risk.
How Does TCI Work?
Businesses considering TCI as a risk management strategy should be aware of how it works. The procedure includes the following steps:
Policy Purchase: You buy a trade credit insurance policy from an insurance provider.
Credit Assessment: Before approving the policy, the insurance company determines your customer’s creditworthiness.
Policy Terms: The policy describes the terms of the coverage, including the deductible, any exclusions, and the percentage of the insured amount.
Shipment and Credit Period: You carry on with the provision of the product or services, and they can make the payment within the credit period that you have decided.
Non-Payment Event: You can claim with the insurance company if the customer runs into financial trouble and is unable to pay for the goods or services during the credit period.
Insurance Payout: Once the claim is approved and satisfies the policy’s requirements, your company will receive the agreed-upon percentage of the insured amount from the insurance company
The Affordable Cost of TCI:
The cost of TCI is calculated based on various criteria, including the volume of trades, the creditworthiness of buyers, the industry’s nature, and the agreed repayment terms. TCI is a practical choice for companies in Dubai who want to strengthen their financial foundations because it is remarkably affordable, with costs usually remaining below 1% of the insured sales volume.
The Flexibility of TCI:
Your business can scale its coverage according to its budget and risk profile. They can choose to cover specific clients or a select number of clients, depending on which clients are considered risky. Some policies even provide secondary coverage, acting as a safety net when the primary policy falls short.
Industries Where Credit Insurance Helps
Trade credit insurance is important in some industries more than others. Have a look at the industries for which TCI is important.
In Dubai, where diverse sectors thrive, TCI becomes important for businesses involved in Agriculture and horticulture, Construction, Financial Services, Food and drink, Manufacturing, Oil and gas, Paper and printing, Recruitment, Retail, Wholesalers, Logistics/Distribution, Textiles, and Pharmaceuticals.
These sectors find immense value in safeguarding their transactions, given the unique challenges each industry may face.
Benefits of Trade Credit Insurance
The advantages of Trade Credit Insurance can be summarized in three key pillars – Prediction, Protection, and Growth.
Prediction:
You gain access to accurate and up-to-date data on changing risks within your customer portfolio. You can track and manage customer orders and payments with confidence, using real-time insights to inform your decisions.
Protection:
With trade receivables safeguarded, your cash flow and profit line become more secure. This not only protects your business but also presents a clear picture to banks, auditors, and investors, enhancing your overall financial credibility.
Growth:
You can identify growth opportunities and expand your business horizons. By releasing resources through the secure foundation of TCI, your business can confidently explore new customer segments and markets, encouraging long-term expansion.
Does Your Business Need Trade Credit?
In Dubai’s active business community, the question comes up: Does your business need Trade Credit Insurance (TCI)?
If your business provides credit to customers for large purchases, the imminent risk of non-payment due to unexpected events can be a possibility. TCI can be your strategic partner and offer you a financial safety net. This enables confident expansion without taking on excessive risk.
Assess your market: the amount of transactions, the type of business you are in, and the creditworthiness of your customers. In a world where risks remain, Trade Credit Insurance could be your business’s key to resilience and growth.
Do you want to know more about TCI? Call New Age Insurance Brokers LLC at +97143573378 or send an email to info@newageib.com and get all the help you need.
