Advantages and disadvantages of export credit insurance

When it comes to export trade credit insurance, the advantages of having a policy far outweigh the disadvantages.

In fact, it could be argued that the only disadvantage of a trade credit insurance policy is its cost. However, with export credit insurance premiums starting from $15,000 AUD, this quickly becomes insignificant the moment a key customer fails to pay.

Advantages of a trade credit insurance policy

Security of cash flow

Selling on credit is an inherently risky business. Unless you demand payment upfront, your customer could fail to pay you for the goods or services you provide. A trade credit insurance policy helps secure your cash flow by protecting you against non-payment. This could typically be as a result of cash flow difficulties experienced by your customer, or even certain political events. What’s more, you’ll benefit from our industry knowledge and gain access to up to date information such as payment behaviour in different geographies and sectors.

Improved access to finance

Your trade export credit insurance policy can be helpful when looking to access finance, as many banks and lending institutions look favourably on businesses whose cash flow is secure. Having a trade credit insurance policy could help you build a strong relationship between your business and your banks or lender.

Minimise bad debt

One of the best ways you can minimise the risk of bad debt is to insure your accounts receivable. Trade credit insurance covers you when you customers fail to pay and protects you from the domino effect that can take hold when a business goes under.

Improved customer relationships

When assessing the creditworthiness of a customer or potential customer, you have the opportunity to get to know them better and to build mutually beneficial relationships. This may include tweaking your credit terms to help make sure both businesses have liquidity.

Confidence to explore new markets

Export trade credit insurance is more than a backstop to protect your business from the risk of unpaid invoices. It is also a tool that can enable trade and help your business grow. You can benefit from the market knowledge and insights of our underwriters and test new products, or explore new sectors or geographies while keeping your exposure to a risk to a minimum. Although credit insurance is not a risk transfer, as our underwriters cannot insure any trade they consider too risky, any refused credit limits will, in itself, help you identify the best areas in which to invest in trade and nurture business growth.

Disadvantages of a trade credit insurance policy

It will come as no surprise to learn that we at Atradius don’t believe there are any disadvantages to a trade credit insurance policy. That is not to say we don’t recognise there are limitations. For example, there will be occasions where we feel the risk is too great and will be unable to offer insurance for a buyer. However, we don’t just take these decisions in isolation. Our key underwriters are experts in their fields and will explain their decision to you. If they feel there is a high risk that your prospective customer will struggle to pay you, you can choose to act on that information and possibly seek out a safer buyer to sell your goods or services to. Rather than being a negative, this will save you money and hassle in the long run.

Related content

How much does export credit insurance cost?

Export credit insurance is usually cheaper than you think.

Can I insure my export credit?

You can insure your export credit. Also called credit insurance, or trade credit insurance, the cover protects your accounts receivable from the risk of non-payment.

Disclaimer

The statements made herein are provided solely for general informational purposes and should not be relied upon for any purpose. Please refer to the actual policy or the relevant product or services agreement for the governing terms. Nothing herein should be construed to create any right, obligation, advice or responsibility on the part of Atradius, including any obligation to conduct due diligence of buyers or on your behalf. If Atradius does conduct due diligence on any buyer it is for its own underwriting purposes and not for the benefit of the insured or any other person. Additionally, in no event shall Atradius and its related, affiliated and subsidiary companies be liable for any direct, indirect, special, incidental, or consequential damages arising out of the use of the statements made information herein.