credit risk

Q1. What is credit insurance?
Credit insurance, also called trade credit insurance or accounts receivable insurance, protects businesses from financial losses when customers fail to pay for goods or services sold on credit. It covers risks like customer insolvency, bankruptcy, default, or other credit-related non-payments.

Q2. How does credit insurance protect a business?
If a customer cannot pay an invoice due to insolvency or default, the insurance policy compensates the business for the covered loss. This helps companies avoid severe cash flow disruptions and bad debt.

Q3. Does credit insurance help with risk management?
Yes. Credit insurers often conduct credit risk assessments and ongoing monitoring of a company’s customers to evaluate their financial health. This allows businesses to identify potential risks early and adjust credit terms or coverage levels proactively.

Q4. How does credit insurance benefit trade and financing?
By protecting accounts receivable, businesses can:

• Offer more competitive credit terms to customers, boosting sales and growth.
   
• Enhance financing opportunities, since insured receivables are more attractive to lenders.
   
• Expand into new markets, including international trade, with reduced risk.
   

Q5. Does credit insurance help with cash flow?
Yes. With this protection, businesses can extend credit more confidently, knowing they are covered against major non-payment risks. It minimizes the financial impact of bad debt and stabilizes cash flow.

Q6. Is credit insurance useful for all businesses?
It’s especially valuable for companies that:

• Rely heavily on credit sales
   
• Have a few major customers that represent large portions of revenue
   
• Engage in domestic or international trade where payment risk is significant