The importance and benefits of trade credit insurance in business. Securing a company’s financial stability and growth

In today’s dynamic business environment, companies face constant challenges
in managing their finances and maintaining a stable cash flow. One of the strategies
businesses can use to protect their finances is trade credit insurance. This form
of insurance offers protection against clients who do not pay or pay late, and it can
have a significant impact on a company’s financial stability and growth.

Trade credit insurance gives a company the certainty that its significant investment in the services or goods it has supplied will not be put at risk by clients failing to pay. This minimises the risk of bad debts and unwanted losses.

One of the key benefits of trade credit insurance is improved company liquidity. It allows a company to plan its expenditure, investments and development projects more effectively, as they will not be held up by unpaid invoices. This financial certainty also allows businesses to focus on developing and growing their business without worrying about the uncertainty associated with receivables.

In this article, we take a closer look at the ways in which trade credit insurance strengthens a company’s financial stability and growth. We explore the different types of trade credit insurance, as well as the key factors companies should consider when deciding whether to include this form of insurance in their risk management strategy. We also touch on practical examples of companies using trade credit insurance successfully.

Do you know how you can protect yourself against unpaid invoices?

With persistent inflation and rising costs for all businesses, the risk that your customer will not pay an invoice is becoming ever higher.

Compared with the previous year, the number of bankruptcy proceedings declared rose by 59.32%, from 177 to 282 proceedings.

That is why we would like to draw your attention to the option of insuring all of your company’s receivables, or those from individual customers you are concerned might fail to meet their obligations.

Surveys in the field of business and finance report that approximately 25% to 40% of invoices may be paid late, although this figure may vary depending on the sector and the size of the companies.

In any case, this figure should serve only as a general guide, because the real likelihood of an invoice being paid late or not at all can vary between different sectors, company sizes and even individual business partners.

What is trade credit insurance?

The basic aim of trade credit insurance is to help a business when a customer defaults – fails to pay for goods delivered or services provided. As receivables sometimes make up as much as 40% of a company’s assets, just a few cases of non-payment can have a major impact on its cash flow and on the very functioning of the company.

How does it work?

1. You can check your customer’s reliability even before the first phone call, using the insurance company’s system, which will tell you precisely whether you can expect any problems with the business partner in question.
2. You receive a special stamp that serves as a signal to your customer. If they really had to leave an invoice unpaid in a given month, it would certainly not be yours.
3. If your customer does not pay an invoice and you decide to take action, the insurance company will contact them. Full (100%) payment of your receivable is achieved in more than 70% of cases.
4. If the entity in question really does not have the funds to pay your receivable, the insurance company will reimburse you for up to 90% of its value.

How much does an unpaid receivable “hurt”?

Example of a loss from unpaid receivables at a 5% profit margin.
Insured turnover of EUR 3,000,000 with a premium rate of 0.3% and an annual premium of EUR 9,000.
We assume an insurance payout of 90% of the value of the receivable.

Trade credit insurance is an important tool that can ensure financial stability and sustainable growth for businesses in every sector. Protection against late payment or non-payment of invoices gives companies certainty in managing their cash flows and liquidity.

We have seen that trade credit insurance allows businesses to protect themselves against the uncertainties associated with clients who do not pay, which makes for more effective planning and investment in further development. Improved liquidity and the elimination of the risk of bad debts help strengthen a company’s business position and allow greater confidence in business transactions.

When deciding on trade credit insurance, it is crucial to understand the specifics of the business and the individual risks the company faces. It is an investment in certainty and in the smoother running of the company in a market where uncertainty is no exception.

If you have any further questions or need more information about trade credit insurance and its benefits, do not hesitate to contact us. Our company is ready to provide further help and advice so that you can make full use of this tool for the prosperity of your business.