Trade credit is an agreement between two businesses wherein both can exchange goods between each other and make payments at a later date. The trade-credit duration is usually between 7 and 120 days. If the seller has mentioned the trade credit to be 30 days, the buyer makes payments after 30 days from the invoice date.
There are some associated risks with this type of payment. Your business could be facing losses when your customer becomes insolvent or fail to pay the required amount before the deadline. Financial protection is on the top of the mind of most business owners. The occurrence of late payments is common and it could result in problems of cash flow for your business.
Cover the risks associated with trade credit:
Bad debts can pose serious problems for your business. Apply for a credit insurance policy to sort out trade credit problems. This insurance policy protects a policyholder when his/ her customer fails to pay trade credit debts due to insolvency/ losses incurred. The policy pays the dues and thereby helps the policy holder’s business to generate revenue.
If you are looking for reputable credit management services in Australia, get in touch with Niche Credit Trade. With about 30 years of experience, they have worked with a large number of businesses and are popular for their excellent client relationships. Their experienced credit trade brokers will help in finding the best policy for your business.
Some factors that determine the premium of credit policy:
- Business turnover
- Trading history
- Historical debt loss of the business
- Number of customers a business is dealing with
The insurer monitors the customers of the policyholders by checking public records, receipt of financial statements, information from other policyholders who sell to the particular customer, and past due reports. After fact-checking, the insurer assigns a credit limit to each insured customer. It is the amount payable by the insurer if the customer fails to pay on time.
If a policyholder is a kick-starting trade with a new customer, he/she can request a credit limit at any time. If any at instance the insurer notices any changes in the customer’s financial position that may affect your business, he/she will bring it to your attention and layout appropriate plans to mitigate financial risks.
International risks associated with trade credit:
There could be political interventions. The government of the country you exported goods to may impose sanctions that would prevent your customer from making payments. It is also tricky to keep a constant check on the finances of customers abroad. The language barrier contributes to added risks. Credit insurers help with mitigating risks with international trade.
Protect your business:
Business growth isn’t without risks. With business growth you gain more customers which in turn increase the risks. A credit insurer would back up your finances which put your mind at ease and help you concentrate more on your business. Choose the right policy that offers ample protection and protect your business.