The Role of Trade Credit Insurance in International Trade
Trade Credit Insurance is a key tool to support companies involved in international trade. Learn why it’s important, & how it helps UK businesses trade abroad.
Trading internationally is a boon for many UK businesses. However, it comes with its own unique set of challenges that need to be overcome.
If you’re thinking about, or already exporting, and you wish to offer credit terms to your buyers, how do you plan on ensuring that both potential new or existing customers are both creditworthy and able to pay their debts?
Recouping funds in the UK is already a difficult enough challenge, however how will you protect your cash flow if an international customer fails to pay an invoice or ceases to trade?
As we continue to live through turbulent economic times, these remain important questions to ask. The answer, as it is when trading locally, is Trade Credit Insurance.
Why is Trade Credit Insurance important in international trade?
Whilst Trade Credit Insurance is incredibly important should a customer fail to pay, it’s also a key factor in your ongoing expansion into new markets.
When you apply for Trade Credit Insurance, your Credit Insurer will conduct a thorough credit check on any potential international customer. If the buyer is approved for cover, then you can trade in the knowledge that in the event of non-payment (and subject to other Policy Terms & Conditions being met) you are protected against a loss. If they are not approved, this may be considered a red flag and you may choose to agree to an alternative method of payment or contract.
It can be incredibly difficult for a UK business to vet foreign organisations, or organisations in unfamiliar markets, so having the thumbs up from your Trade Credit Insurance insurer is a vote of confidence. Trade Credit Insurers hold vast amounts of data on many overseas companies, and in situations where they do not hold information on a buyer, they have access to agencies to secure information, or will even contact the company directly for the information they require.
How does international Trade Credit Insurance work?
International Trade Credit Insurance works in much the same way as it does domestically.
Most insurers have branches or networks across the world to ensure they have a good understanding of local economies and maintain the ability to properly assess an organisation’s creditworthiness.
The application process is simple and normally via an online portal. By providing the Insurer with the full name, registration number and your credit limit requirement then it is not unusual for the Insurer to respond with a decision on cover within 48 hours.
Working with a credit insurance broker ensures that the entire process is as simple and as stress-free as possible, allowing you to focus on your day-to-day responsibilities.
The benefits of Trade Credit Insurance when trading internationally
While Trade Credit Insurance does allow you to more confidently consider and expand into international markets, it also brings with it a myriad of other benefits to your organisation:
- Protection Against Economic Downturns: In times of economic downturns or recessions, Trade Credit Insurance provides protection against business failures, helping businesses survive and continue operations. Therefore, in the current international economic and political climate, Trade Credit Insurance provides balance sheet protection, helping business owners and leaders to sleep better at night.
- Financial Security: Trade Credit Insurance provides an added layer of financial security when trading internationally. As insurance mitigates the risks associated with extending credit to customers, it ensures that your business remains financially stable even in the face of unpaid invoices or bad debts. Chasing debts domestically is difficult – chasing debts internationally is even more so. Some insurers provide in-house collection services to assist you with international debt collections.
- Improved Cash Flow: Your organisation’s cash flow can impact its rate of growth, especially in an international market. Uncollected debts and late payments can severely impact your cash flow, making it difficult to meet your business' financial targets. With Trade Credit Insurance, you'll receive a claim payment for unpaid invoices, helping to maintain a healthy cash flow.
- Access to Financing: Lenders and financial institutions may view your own business more favourably if you have Trade Credit Insurance in place. By reducing the risk of non-payment, insurers make your business a less risky prospect, potentially leading to better financing options and terms.
- Competitive Advantage: Offering credit terms to customers can give your business a competitive edge, especially if your competitors do not offer the same degree of flexibility. Trade Credit Insurance allows you to extend credit with confidence, helping you attract and retain new customers in international markets