As the possibility of a recession looms, trade credit insurance has become a particularly relevant and talked-about subject. Protecting your Canadian business against the risk of non-payment from customers is more important now than ever before
Trade Credit insurance (Account Receivable insurance) is an insurance product that allows you to insure your outstanding account receivables. In the event that one of your clients becomes insolvent or delayed in payment past 30 days you can open a claim and get the full value of the outstanding receivables paid back, less the policy deductible.
Apart from allowing you to be reimbursed for your outstanding receivables, a trade credit insurance policy is essentially a window into the future. The insurance companies that offer trade credit insurance are experts in financial data collection and as such track how all of your clients are with payments. Each of your buyers credit worthiness is checked before hand, and as a result will be granted a limit of credit. If many claims start to roll in from a single buyer the insurance company will warn you that they are becoming more and more delinquent with payments. Should this happen, the limit of credit that can be insured maybe reduced or removed altogether depending on how many claims the buyer is causing.
Any company that has buyers they regularly work with and allow them to make purchases through credit. If you have receivables at or over $100k total this is a perfect time to have this discussion with your insurance broker. Companies/ industries that can benefit from a trade credit policy include manufacturers, wholesalers, specialty commercial/industrial contractors, logistics companies or freight brokers, just to name a few.
First and foremost, every company thinking of applying for a trade credit insurance policy should discuss the advantages and disadvantages of getting a policy in place. Once it's determine that a Trade Credit policy is right for your company an application will need to be completed. You'll need to fill out some basic company info, current info on your outstanding receivables, info on your top 10 buyers and your receivables aging data. Once this information has been gathered, your broker will submit it to the Trade Credit insurance company and get you a quote. Some additional questions may be asked by the insurance company. After you get a quote and set up the policy you will have access to the trade credit portal, allowing you to add new buyers, increase or decrease limits, and make claims.
In the event that you need to make a claim the following process will follow. After 30 days of non-payment you will submit the claim to the insurance company. For 60 days, the insurance company will attempt to recover the outstanding payment. If the payment is collected within these 60 days, you will receive it in full and no claim will be filed. If payment is not obtained within the 60 days a claim will be officially filed and you will get the full value of the outstanding payment, minus the policy deductible.
As we creep closer and closer to the financial recession, Trade Credit Insurance is a powerful tool allowing you to keep your finger on the pulse of your buyer's creditworthiness. If you are interested in learning more about how Trade Credit can help your business please contact Cody Macpherson with KASE Insurance at cody.macpherson@kaseinsurance.com or (416) 588-5273 ext 106.
Cody is a Commercial Insurance Broker at KASE Insurance Inc and is also a board member of the Insurance Brokers of Toronto Region.
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