What is Trade Credit Insurance? Why should I use it and how does it protect me?
It is a product that insures your accounts receivable and your business activity from the risk of unpaid invoices which may be caused by a variety of risks; political, bankruptcy and plenty more reasons. Since there is always a risk of defaulting on payments, it is always in your best interest to ensure your receivables to secure your position.
Trade Credit Insurance, or Export Credit Insurance, allows you to identify and isolate buyers that are under a risk of defaulting and therefore allows you to refine your debtors list and ensure a steady cash inflow for the duration of your operations. You also get the opportunity of refining your research methods and general KYC guidelines that further ensure a seamless line of operations going forward.
Using trade credit insurance also offers you a more secure and therefore favorable position when applying for financing; with your cash flow properly secured, it would be easier to obtain loan at generally more favorable rates. This further allows you to explore new and untapped markets more fearlessly since you are backed by secured cash flows and unhindered financing.
How is it different from other commercial insurance?
Export Credit insurance is a service to protect intangible risk (cover to nonpayment of buyer’s risks). Other commercial insurance is a service to protect tangible risk which can happen to goods, assets, machines, cars…etc.
Does our company need any export credit insurance?
Yes. When your company is engaged in export trading on credit payment terms namely Documents against Payment (D/P), Documents against Acceptance (D/A) and Open Account (O/A), it is exposed to “non-payment” risks. Unforeseeable political, social and commercial factors can also prevent payments from your buyers to your company.
Being insured by export credit insurance, your company is protected against bad debts risks, enabling you to secure by extending more favorable terms to overseas buyers. Your capability in acquiring trade finance is also enhanced.
What risks are covered by EGE policy?
EGE policy covers non-payment of buyers that might result directly from any of the risks which are as follows:
Commercial risks, political risks, and the loss arising out of resale of the goods in cases such as buyer’s rejection of the good or non-delivery.
Can cover be provided if the seller and buyer are related companies?
In this case EGE does not cover the risk of non- payment resulting from commercial risks. Otherwise, it can cover the risk of non-payment that is resulted from political risks.
Is there any price list from EGE?
There are many variables which affect the determined price, such as country zone risk, credit period, sales turnover, and buyer risk rating, therefor premium rates vary from Policyholder to Policyholder.
What terms of payment are insured by EGE?
EGE ‘s Coverage of Open Account transactions (without banks guarantee), include: Documents against payment (DP), Documents against Acceptance (DA) for tenors up to 180 days for Short term transactions and up to 5 years for Medium terms transactions.