Most companies would not think of doing business without buying insurance to protect themselves against potential losses of property, investments and inventory. However, many companies fail to exercise the same diligence in protecting their accounts receivable though they often face the risk that one or more of their key customers will not be able to pay their trade debt.

Trade credit insurance can help to protect companies from the harmful effects of buyer insolvency or slow payment due to bankruptcy, natural disasters, civil unrests and other exposures. With trade credit insurance in place, companies can extend more credit to creditworthy customers while reducing the risk of non-payment, thereby promoting safe sales expansion. Favourable bank financing can also be more easily obtained by assigning the insured accounts receivable as collateral.

Trade Credit Coverage

A trade credit policy can cover an insured for up to 90 percent of the loss. Foreign exchange transfer risk, where the buyer is unable to make payment in contract currency due to the imposition of local currency controls, is also covered. Some political risks, such as import/export license cancellation or embargo, can also be included in the coverage for trade credit. Credit insurance can also be obtained to protect against domestic insolvencies, or to mitigate the risk of a client failing to pay in a timely fashion.

Policy Structures

Trade credit policies can be structured on a single- or multiple-buyer basis, covering domestic sales, foreign sales, or all sales combined. Most trade credit programs insure short-term (less than 180-day payment terms) trade receivables and are structured on a multiple-buyer format, insuring a broad spectrum of risk.

Marsh’s Trade Credit Practice specializes in developing solutions tailored to clients’ specific credit exposures. We maintain an extensive international network of credit insurance offices so clients have ready access to local experts. Our knowledge of international markets enables us to advise on the type of cover most suitable for a particular situation. Within Asia, Marsh has trade credit expertise in Singapore, Indonesia, Malaysia, Thailand, India, Hong Kong, China, Korea, Japan, Taiwan and Philippines. Marsh also works extensively with the underwriters to expand market capacity and develop improved trade credit products.

In Singapore, Marsh has helped the Singapore government to arrange the Trade Credit Insurance Programme which offers trade credit insurance protection to Singapore-based suppliers selling domestically as well as internationally.