credit risk

Credit insurance, also known as trade credit insurance or accounts receivable insurance, is a type of insurance policy designed to protect businesses against the risk of non-payment by customers for goods or services sold on credit terms. It provides coverage for losses arising from customer insolvency, default, bankruptcy, or other credit-related issues that prevent them from fulfilling their payment obligations.

Key features of credit insurance include:

• Protection against Non-Payment: Credit insurance helps businesses mitigate the risk of financial loss due to non-payment by customers. If a customer fails to pay an outstanding invoice due to insolvency or default, the insurance policy compensates the insured business for the covered amount.

• Risk Assessment and Monitoring: Credit insurers typically conduct risk assessments of customers to evaluate their creditworthiness and determine the appropriate level of coverage. They may also provide ongoing monitoring of customers' credit profiles to identify potential risks and adjust coverage accordingly.

• Facilitates Trade and Financing: By providing protection against credit risk, credit insurance enables businesses to offer more competitive credit terms to customers, which can help increase sales and expand market reach. It can also enhance access to financing by improving the creditworthiness of accounts receivable, making them more attractive to lenders.

• Enhanced Cash Flow Management: With credit insurance in place, businesses can better manage cash flow and reduce the impact of bad debt on their financial stability. They can more confidently extend credit to customers, knowing that they are protected against the risk of non-payment.

• Global Coverage: Credit insurance can provide coverage for domestic and international trade transactions, offering protection against non-payment risks associated with customers in various countries and regions.

Credit insurance is particularly beneficial for businesses that rely heavily on credit sales or have a high concentration of sales with a few key customers. It helps safeguard accounts receivable and provides peace of mind, allowing businesses to focus on growth and profitability without the constant concern of unpaid invoices.