What is Trade Credit Insurance?

Did you know that 25% of bankruptcies are caused by non-payment of invoices? Your company extends payment terms to customers every day. As this is a routine business task, you may not have considered the risks you are assuming, isn’t that so?

And what should one do when a customer defaults or a business goes bankrupt?

Perhaps you never experienced such situations, but it is important to bear them in mind, and to know how much the unpaid invoices represent of your total sales. Is protection not required for this?

That’s where Credit Insurance comes into play. It protects your business against non-payment of commercial transactions, and makes sure your invoices will be paid, thus enabling you to safely manage your commercial and political risks.

Credit Insurance was introduced in Brazil at the end of the 1990’s decade, with the arrival of foreign insurers. And, in the last few years, the unfavorable economic scenario has helped this important protection tool to gain visibility.

It can be contracted for credit sales in the domestic market, and for financed export operations.

Internal Trade Credit Insurance

Also designated as Domestic Trade Credit Insurance, provides cover within the Brazilian territory against the risk of non-payment by debtors (natural persons and corporate entities), either due to protracted default or insolvency. There are five types of Domestic Credit Insurance:

1. Commercial risks;
2. Breach of guarantee;
3. Consortium operations;
4. Mortgage loan operations;
5. Lease operations.

Export Credit Insurance

The purpose of Export Credit Insurance is to indemnify Brazilian exporters of goods and services for payments defaulted by their overseas customers. Default may arise from:

• Commercial risks – bankruptcy or late payment;
• Political and extraordinary risks – moratorium, war and revolution, among others.

The importance of knowing the customer’s cash flow

Usually, credit sales represent approximately 40% of a company’s assets, and are susceptible to loss if customers default. Therefore, it is essential to know your customer and its credit capacity.

The secret is to have the best information about companies, sectors and economic trends to be able to make well-founded credit decisions, and thereby avoid and minimize losses.

The ultimate objective is to assist your company in avoiding catastrophic losses, and to provide greater protection for the granting of additional credit to existing customers, and for the pursuit of new markets, which otherwise could appear to be too risky.

Moreover, in the event of a loss, it gives you the confidence to expand your sales to offset the loss of margin caused by default.

Learn more about Credit Insurance by clicking here!