Crédit commercial

International trade between countries creates and moves the global economy. The flow of goods and services, and prices, can be influenced by a number of factors, including:

• Global events: The ongoing COVID-19 pandemic has slowed, curtailed, and even halted the production and delivery of many goods and services.
• Currency exchange rates: This is a key influence on net importers, who benefit from strong currencies, and net exporters, who benefit from weak currencies.
• Trade barriers: This can include, for example, import quotas and tariffs imposed by governments to protect domestic industries from foreign competition.
• Geopolitical stability and political unrest: Internal and cross-border conflict and war can disrupt trade routes and transport.
• Transport costs: This can be influenced by many factors, most notably the price of oil.

Trade credit insurance provides protection against the non-payment of a valid debt by the insured company’s buyer. This coverage usually applies to certain defined events (also termed causes of loss or insured perils).

Trade credit insurers will generally cover two types of risk:

• Commercial risk: The risk that your customers are unable to pay outstanding invoices because of financial reasons (for example, declared insolvency or protracted default).
• Political risk: Non-payment as a result of events outside of your or your customers’ control. These can include political events (wars, revolutions), disasters (earthquakes, hurricanes), or economic difficulties, such as a currency shortage restricting the ability to transfer money owed from one country to another.

Trade credit insurance supports your ability to extend credit terms to new and existing customers, thereby helping your business grow safely where previously you may have deemed it too risky. It also protects you against the risk of exporting overseas and reduces uncertainty.

Having trade credit insurance coverage can improve access to additional funding against your accounts receivable, as banks are typically more likely to lend more capital to a business that has trade credit insurance in place. As an insured company, your balance sheet will remain protected at a predetermined reimbursement rate (often between 75-90% of debt value), whether your customer has declared bankruptcy or simply cannot (or will not) pay its accounts due. It also helps to free up capital for use elsewhere in your business and helps reduce bad debt reserves.

Typically, a company would look to insure its whole customer portfolio, which is the most common type of policy. It can, however, also be customized to include only selective or key accounts, in the case of higher-risk customers.

Trade credit insurers offer a wide range of flexible products and policies, which are designed to cater for each company’s different coverage requirements. When seeking out such coverage, you should engage with a broker who has experience and expertise with global risk issues and trade finance solutions. Our experts can assist you with assessing and developing your specific requirements and then help you select the most appropriate coverage.

Coverage can be structured in a variety of ways, including:

Whole turnover: This is the most common policy type, which covers a company’s entire trade receivables portfolio under one policy, insuring a wide range of domestic and export transactions.

• Key accounts: This policy is designed to insure a company’s largest customers or another defined band of coverage where the greatest risk exists (i.e., selective cover).
• Single risk: This policy is designed to insure exposures related to one customer.
• Excess of loss: This policy is designed to cover catastrophic or exceptional losses of the largest customers above the normal level of bad debt, by setting a suitable deductible level.

Each of the policies can cover domestic sales, export sales, or a combination of both – and can be defined regionally or globally. Political risk insurance is often included.

Given all of these options, for many businesses, trade credit insurance remains affordable: coverage costs typically represent less than 1% of sales revenues.

Trade credit insurance is a dynamic product. Credit limit requirements on customers change throughout a policy period, reflecting changing business needs. Therefore, Marsh typically supports its clients in many interactions with insurers to obtain or increase credit limits.