For businesses facing ongoing challenges with cash flow and debt risks, trade credit insurance provides businesses of all types and sizes with valuable assurance that can maintain financial viability. It's an effective risk mitigation tool that can help protect balance sheets and facilitate business growth by freeing up working capital.

Trade credit insurance protects your business against customers failing to pay for goods or services provided to them on a credit basis, due to insolvency, for example. In conditions or industry sectors where businesses are dealing with challenging cash flow cycles and payment terms, trade credit insurance can provide valuable financial protection in the event of payment default by a customer or sub-contractor.

How does trade credit insurance work?

The insurer effectively buys your bad debt exposure risk. If your customer(s) default on payments owed or goes into insolvency you are able to recoup non-payment losses by claiming on your business's trade credit insurance. The insurer pays the claim and your cash flow is protected.

For many businesses, it's more important than ever to protect themselves against the potential 'domino effect' of late payments and customer insolvency. Trade credit insurance can help you enter into transactions on credit with greater confidence and facilitate business growth by enabling your company to build trading relationships more confidently with both existing and new customers.

It can also provide some insight into the financial status of prospective and existing customers, via your insurer's credit intelligence and risk rating for them. Some businesses may be facing harsh economic realities and declaring themselves insolvent. Being aware of potential problems that could develop can help you make informed decisions regarding not only who you trade with but the terms on which you may choose to trade in the future.

7 ways that trade credit insurance protects businesses

Why consider trade credit insurance for your business?

  1. Late payments and bad debts are the main triggers of insolvency in many companies. If one of your key customers becomes insolvent your cash flow will be protected.
  2. It can help protect you from the 'domino effect' of an unrelated business failure which could impact your customers disastrously.
  3. Trade credit insurance can be used to protect against bad debts and also against non-delivery through the supply chain.
  4. While other forms of insurance may be difficult to obtain, trade credit Insurers still have risk capacity and appetite.
  5. A trade credit specialist broker can review your risk exposures to help you secure appropriate cover with an insurance provider.
  6. There is a range of choice in cover with some policies specifically designed for industry sectors, and terms ranging from traditional whole-turnover policies to single invoice cover.
  7. Using credit insurance to protect you against the impact of unexpected bad debts and can make your business more attractive to larger suppliers.

Why choose Gallagher to obtain trade credit cover for your business?

Our trade credit specialists have the experience to understand your risk exposures and can advise you accordingly. They also have the relationships with trade credit insurance providers to be able to access the cover best suited to your business needs.

With Gallagher, you will benefit from

  • access to the trade credit insurance market through our established relationships with insurers
  • we take a partnership approach to achieving a clear, agreed strategy on managing your trade credit risk
  • part of our service is providing support in managing your credit limit coverage, overdue payments reporting and claims handling
  • through being one of the largest trade credit brokers Gallagher has leverage with potential insurers with obtaining coverage
  • we specialise in providing insurance solutions with a focus on risk management.

Please contact our team should you wish to discuss any aspect of trade credit insurance, including where a notifiable event such as receivership or insolvency may be applicable.

Disclaimer

Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective, and offer broad information about risk mitigation, loss control strategy and potential claim exposures. We have prepared this commentary and other news alerts for general information purposes only and the material is not intended to be, nor should it be interpreted as, legal or client-specific risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms and/or conditions, and should not be relied on for coverage interpretation. The information may not include current governmental or insurance developments, is provided without knowledge of the individual recipient's industry or specific business or coverage circumstances, and in no way reflects or promises to provide insurance coverage outcomes that only insurance carriers' control.

Gallagher publications may contain links to non-Gallagher websites that are created and controlled by other organisations. We claim no responsibility for the content of any linked website, or any link contained therein. The inclusion of any link does not imply endorsement by Gallagher, as we have no responsibility for information referenced in material owned and controlled by other parties. Gallagher strongly encourages you to review any separate terms of use and privacy policies governing use of these third party websites and resources.

Insurance brokerage and related services to be provided by Arthur J. Gallagher & Co (Aus) Limited (ABN 34 005 543 920). Australian Financial Services License (AFSL) No. 238312