Seize the opportunity, but protect against the risk

While it’s easy to recognise Singapore as a ‘land of opportunity’, businesses could be easily forgiven for overlooking the fact that alongside every trading opportunity, there are also potential risks.

Clearly the ideal strategy is to avoid the risks altogether. In reality, what businesses demand is an effective solution that allows them to trade effectively, capitalise on new opportunities and allow potential risks to be managed simply.

Trade credit insurance was created to achieve this by providing a ‘framework of protection’ for a range of situations, where businesses might be placed at risk through payment default, delays or other factors, such as political risks. The latter are particularly relevant when trading internationally. Differing payment practices, conditions of business and even cultural influences can also pose a risk to the unwary.

There are usually three commonly asked questions about credit insurance. What is it? How does it work? And what are the benefits? So as an overview I’ll look at each of these in turn.

What is trade credit insurance?

Credit insurance is simply a way to protect your business against the risk of not getting paid when you’re trading on credit payment terms. Once the goods have been despatched and your customer has accepted delivery, it is
obliged to pay you by the due date. However, if you don’t get paid, then the credit insurance policy covers you against this potential financial loss.

How does it work?

Once the due date has passed and additional chasing for payment has proven ineffective during a pre-defined period within the policy, you can then make a claim against your policy. In situations where the reason for default is that your customer has become insolvent, then a claim can be made immediately.

Every credit insurance policy is created around the specific requirements of an individual business and the scope of risks that the company needs to be covered. Consequently, the explanation given here is purely a general guide to the process and the common principles that apply to every policy.

What are the benefits?

The obvious one is the ability to minimise your company’s exposure to the risk of financial losses in the event of non-payment by one or more of your customers. This alone provides increased business freedom, allowing you to
pursue sales opportunities knowing that your trade is protected.

Also, having credit insurance in place can have a positive influence when seeking finance, as banks know your trade finance is protected. When used as collateral, credit insurance can also help you to negotiate more favourable interest rates.

If your customer should default, then by making a claim on the policy, you ensure that your cash flow remains uninterrupted and disruption to the business is minimised. Among a range of additional benefits, we also provide
valuable insight on the financial viability of your customers and prospects from our database of 52 million companies worldwide.

For multi-national businesses, the diversity, frequency and scale of the risks can be significant, whilst varying from country to country.

The Atradius ‘Global’ policy is a sophisticated tailored credit management solution. It provides effective credit insurance protection, with underwriting expertise for every region of the globe and with comprehensive service from dedicated account teams supporting not only the policyholder’s head office but also its subsidiary offices in other countries.

With 31% of the global trade credit insurance market and a total income of EUR 1.7 billion, the Atradius Group makes more than 22,000 trade credit limit decisions every day and provides trade credit insurance, surety and collections services worldwide through 160 offices in 42 countries.

Credit insurance is flexible enough to accommodate the needs of all types and sizes of business. Further, you can select the risks that you want covered so that you can trade safely and concentrate on seizing the opportunities.
 

Author: Martin Jones, Country Manager, Atradius