Trade Credit Insurance: Single Debtor Buyer
Single-buyer trade credit insurance will cover one specific transaction or service to a particular customer. The policy will typically provide coverage for one year. There are three different categories of single-buyer trade credit insurance:
• Short-term. This will cover repayment terms of a duration of less than one year. This is typically used for the sale of non-capital goods.
• Medium-term. This will cover repayment terms of a duration of one to five years.
• Long-term. This will cover repayment terms of over five years. Coverage is typically limited to seven years.
The number of trade credit insurance companies who offer single-buyer trade credit insurance is limited and is usually available at a premium. Single buyer policies are considered to be high risk and the insurer expects a well-written and developed submission when applying. It is typically the responsibility of the insured to prove the customer’s financial capability, usually by providing financials and/or previous trade history for that customer.
Have a question or comment about trade credit insurance? Feel free to post your inquiry on this blog or contact Jack Trama directly by clicking here.
Trade Credit Insurance: Frequently Asked Questions
Q: How do I know if trade credit insurance makes sense for my business?
A: It’s often best to speak with a trade credit insurance professional who can evaluate your business situation and make a recommendation based on specialized knowledge of the product. Your business may be suitable for trade credit insurance if any or all of the following general guidelines are true:
- You sell to customers on open credit terms
- Your business has annual sales exceeding $1,000,000 per year
- You have high accounts receivable exposure with a few large accounts
- You’ve experienced bad debt losses in the past
- You prefer not to tap into your own cash reserves in the event of a loss
- Your business needs an edge on the competition
- You want to expand sales and open up brand new markets
- You want access to capital at some of the lowest rates available
Q: I currently have a commercial insurance package for my business. Is Trade Credit Insurance included?
A: No, not typically. Trade Credit Insurance is a highly specialized product and is usually never included with other business insurance you may have. While you may already be covered for fire, theft, and other liability insurance, Trade Credit Insurance compliments these coverages and protects one of your largest unprotected assets - accounts receivable - from loss.
Q. How are premiums calculated?
A: Premiums are based on a multiple of annual sales. Rates are influenced based on prior loss history, risk grade of companies insured, risk sharing coinsurance, and policy deductibles.
Q: We sell on Letter of Credit. How does Trade Credit Insurance help me?
A: Please see following article on the benefits of Trade Credit Insurance versus Letters of Credit by clicking here.
Q: How can a Trade Credit Insurance Policy help our company manage risk?
A: A properly structured Trade Credit Insurance Risk Management program will provide you with analysis and advance notification of financially troubled companies or industries. With this critical information, you’ll be in a position to avoid buyer default situations before being required to submit a claim.
Have a question or comment about trade credit insurance? Feel free to post your inquiry on this blog or contact Jack Trama directly by clicking here.