Trade Credit Insurance Mythbusters: Debunking 4 Common Misconceptions

In today's competitive business landscape, extending credit to customers is a fundamental part of securing sales and fostering growth. Yet, this everyday practice carries the inherent risk of non-payment. Trade Credit Insurance (TCI) is a powerful tool designed to mitigate this risk, but it remains one of the most misunderstood products in the insurance world.

These misunderstandings and myths can prevent businesses from adopting a solution that could protect their cash flow and fuel their expansion.

At NCI Brokers (Asia), we believe in empowering businesses with facts. It's time to set the record straight. Let's debunk four of the most common myths about Trade Credit Insurance.

Myth 1: "Trade Credit Insurance is too expensive."

REALITY: This is the most frequent objection we hear and it’s fundamentally incorrect. When weighed against the potential loss of a significant bad debt, the cost of TCI is minimal. The premium is not a blanket high rate; it is calculated based on your turnover, industry, customer base and trading history.

For most businesses, the average premium is a small fraction of one percent of their insured turnover. To put it in perspective, for an average rate of just 0.22%, a $$75,000 invoice can be insured for a premium of around $165. When you consider that a single default of that size could wipe out the profit from numerous successful sales, the premium is a small price to pay for certainty and a protected bottom line.

Myth 2: "Insurers will only insure good risks I'm not worried about."

REALITY: It’s a common fear that insurers will only approve cover on your most creditworthy customers, leaving you exposed to the very risks you want to insure. This is a misunderstanding of how insurers manage risk portfolios. Their business is not to avoid risk entirely, but to price and manage it effectively using vast amounts of data.

The proof is in the numbers. In the 2024 financial year, the average approval rate on credit limit requests at NCI submitted to insurers was between 85% and 95%. This demonstrates a strong appetite to support trade. As specialist brokers, our role is to present your case effectively and approach the right insurer whose risk appetite aligns with your needs, ensuring you get the broadest possible coverage.

Myth 3: "Claims are difficult to make and are rarely paid."

REALITY: The fear that "insurance companies don't pay" is pervasive across all types of insurance, but our data shows this is false. While the claims process requires diligence and adherence to policy terms, it is absolutely designed to work. The key is managing your policy correctly.

At NCI, we act as your advocate during a claim. Our statistics for claims we've managed show that 90% are paid in full. A further 5% are partially paid, often due to specific policy clauses. The small 5% that are declined are almost always due to non-compliance, such as trading beyond an approved limit or failing to report an overdue debt on time. This highlights the critical importance of having an expert broker to guide you, ensuring you meet your obligations and secure your claim payment when you need it most.

Myth 4: "There is too much administration to manage a policy."

REALITY: Business owners are time-poor and the thought of extra paperwork is daunting. While any insurance policy requires management, modern TCI solutions, especially when managed by a specialist broker, are designed to be streamlined and efficient.

This is where NCI provides a distinct advantage. Through our exclusive NCILink online portal, we help our clients minimise administration and manage their policies with ease. This platform allows you to multitask, apply for limits, and monitor your portfolio, leading to quicker decisions and better results. Furthermore, we work to structure policies that align with your existing credit management practices, ensuring a seamless integration into your current workflow rather than adding a burden to it.

Don't let myths prevent you from protecting your business. Trade Credit Insurance is an affordable, effective and manageable tool for any Singaporean company that trades on credit terms.

Protect your most valuable asset - your accounts receivable. Contact NCI Brokers (Asia) today on +65 9178 9910 or at [email protected] for a no-obligation consultation on how a tailored Trade Credit Insurance solution can secure your business's future.