In today’s unpredictable economic landscape, businesses face several challenges—one of the biggest being customers delaying or failing to make payments. This can put serious financial strain on any company. That’s where trade credit insurance comes in, serving as a powerful risk management tool to keep your accounts receivables protected and cash flow steady.
For Canadian businesses, trade credit insurance can be a game changer. But is it the right solution for you? In his blog, we’ll answer the key question: What are the benefits of trade credit insurance?—exploring how it works, whether it’s the right fit for your business, and how to choose the best policy for your needs.
What Is Trade Credit Insurance and Its Benefits
Trade credit insurance, also known as accounts receivable insurance, provides businesses with the protection they may need should a customer default on their payment due to bankruptcy, insolvency or other financial issues. This policy reimburses a bulk of the outstanding debt, helping you maintain your cash flow and protect your capital.
Having the ability to protect your capital against unpaid debts creates many benefits. Some of those are:
- Protection against customer’s non-payment—This allows your business to continue without a loss of revenue.
- Enhanced cash flow—Your business can invest in growth opportunities and maintain its financial stability.
- Increased access to financing—Financial institutions view trade credit insurance as positive risk management, allowing more access to loans.
- Stronger relationships with client—Trade credit insurance will allow you to extend your credit and increase loyalty and satisfaction with your client base.
🔎 Learn more: What is Trade Credit? (+Why You Need Insurance)
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Is Trade Credit Insurance Policy Right for Your Business?
Understanding the benefits of trade credit insurance is important, but it doesn't automatically mean it’s the right choice for every business. To determine if a credit insurance policy aligns with your needs, consider the following factors:
The Industries You Support
Insolvencies have increased in 2024 by 28.6% compared to 2023. If your industry relies heavily on credit sales and has customers in industries with extremely high insolvency rates, trade credit insurance would be worth investing in.
Your Company Size & Revenue Dependence
If you’re a small to medium-sized enterprise relying on a few key customers for most of your revenue, a single client’s non-payment could have severe consequences. Credit insurance coverage can protect your cash flow from stalling.
Plans for Expansion
Expanding your business locally or internationally means working with new and unfamiliar buyers. This uncertainty can make extending credit risky, especially if a customer fails to pay. Trade credit insurance helps mitigate this risk, giving you the confidence to grow your business without fear of non-payment.
Financial Stability
Your business’s overall financial stability can determine if you require trade credit insurance coverage. A large reserve and strong cash flow with diversified revenue streams may not need it. However, if your cash flow is tight and you have a high exposure of a client defaulting for non-payment, it’s worth considering.
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Picking the Right Trade Credit Insurance Policy
If your Canadian business benefits from trade credit insurance, consider the following key items to pick the right policy for you:
1. Assess your Risk Exposure
Review a list of your key clients, including existing ones to whom you’ve extended credit. Afterwards, determine which are at risk of non-payment.
2. Implement Strong Credit Management Practices
Trade credit insurance only works well if you have implemented your own risk management alongside your policy to help further mitigate risk. You could establish clear credit terms, remind delinquent customers of non-payment, and reward early payments with incentives.
3. Consult with a Trade Credit Insurance Broker
A knowledgeable broker will guide you through reviewing your trade credit risk, provide unique insights, and recommend suitable policies based on your business needs and current trends in the market.
Choose KASE Insurance For Reliable Trade Credit Insurance
Trade credit insurance is a valuable tool for protecting your business against your customers’ defaults. Enjoy business security, constant cash flow, and peace of mind when you use credit terms.
KASE Insurance can help you get the right trade credit insurance policy that best suits your business needs. With decades of expertise, we’re here to help you proactively manage your credit risk, strengthen your financial position, and focus on growth opportunities.
Contact us today and let’s explore the best coverage options for your business.