Strategy Euler Hermes

Executive’s Guide to Trade Credit Insurance

Sponsored by Euler Hermes

For CFOs and company financial managers, protecting the bottom line and facilitating expansion is essential for company growth and prosperity. Trade credit insurance protects working capital and reduces the risk of incurring bad debts.

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Trade credit insurance is a tool that protects businesses from non-payment of commercial debt. It covers your business-to-business accounts receivable. If you do not receive what you are owed due to a buyer’s bankruptcy, insolvency or other issue, or if payment is very late, a trade credit insurance policy will pay out a percentage of the outstanding debt.

Trade credit insurance works differently than other business insurance policies. It’s a credit management tool that specifically allows your business to prepare for bad debt scenarios. With trade credit insurance, you can reliably manage the commercial and political risks of trade that are beyond your control. Trade credit insurance can help you feel secure in extending more credit to current customers or pursuing new, larger customers that would have otherwise seemed too risky.

Trade Credit Solutions for Business

Trade credit insurance is purpose-built for businesses to help ease overly conservative credit policies without exposing companies to risk. It reduces the time and cost burden of collecting and analyzing data to identify new opportunities for growth and expansion. It can decrease reliance on bad debt reserves that tie up capital and keep companies from being able to reinvest in their own growth. Here’s how it works:


Business development and safe growth go hand in hand with good business management. Trade credit insurance helps deliver a competitive advantage: It allows you to increase market share, boost market penetration and expand into new markets without credit concerns. With trade credit insurance, you can:

  • Expand existing customer relationships: Trade credit insurance can give you the confidence to overcome conservative credit limits for customers, effectively solidifying and expanding your business relationships. In addition, partnering with the right trade credit insurance provider can deliver valuable insight into customers’ financial health to help you capture new growth opportunities.
  • Safely expand sales: Trade credit insurance can give you the confidence that you will be paid for what you sell, so you can offer better terms and raise credit limits to grow sales and enhance customer relationships. You can also more aggressively grow sales by as much as 20% with a key customer without the worry of concentration risk.
  • Securely delve into new international markets: Trade credit insurance can help you gain a valuable presence in international markets. It is designed to protect your receivables against loss due to unique export risks including political risks, economic downturns and natural disasters, eliminating cash-in-advance terms or letters of credit. It also delivers market knowledge to help you make more informed growth decisions.
  • Effectively enhance your borrowing base: Having access to increased capital through bank loans or lines of credit is an important part of effective cash-flow management. Lenders look favorably on businesses that have insured their receivables because they know that their investment in your business is protected from loss caused by customer default or insolvency.

Working Capital

A deficit in working capital can mean you lose out on growth and new business opportunities. Many companies use their accounts receivable as a form of collateral for financing an increase in working capital — a strategy that is becoming more challenging due to the current financial landscape.

Trade credit insurance is an effective way to increase net working capital. It acts as a safety net to protect your business from non-payment of your accounts receivable. This frees you from maintaining bad debt reserves and helps you protect your capital, maintain your cash flow and secure your earnings while extending competitive credit terms to your customers.

Trade credit insurance can also help companies secure working capital financing. Banks consider receivables insured by trade credit insurance as secured collateral and may be willing to lend up to 80% more on those insured receivables.

Bad Debt Protection

Once payment from a customer is deemed uncollectible, it becomes a bad debt expense that is offset by a reduction to your accounts receivable. Bad debts also make your company’s accounting processes more complicated and take up valuable staff time and resources as they unsuccessfully try to collect on the debts.

Bad debt protection is a key benefit of trade credit insurance and it’s why the insurance protects up to $600 billion in U.S. sales. It allows you to remove the credit risk from your balance sheet, improving margins and strengthening your balance sheet.

Credit Department Efficiency

Whether centralized or decentralized, a credit department can become more efficient when receivables are insured with a trade credit insurance policy. Trade credit insurance supports credit department efficiency in these ways:

  • Risk assessment: Trade credit insurance issuers make risk management more efficient by providing deeper insight into customers, industries and countries plus active monitoring on insured clients.
  • Credit policy development: Trade credit insurers can provide companies access to trade credit professionals and data that will help to streamline the creation of a strong credit policy.
  • Credit decision-making: Trade credit insurance coverage can help justify increasing or enhancing credit terms on a case-by-case basis and save the credit department time.
  • Mitigation of bad-debt losses: Trade credit insurance coverage protects you from buyers who delay payment, refuse to pay, declare bankruptcy or otherwise become insolvent.

With trade credit insurance from Euler Hermes, you’ll receive ongoing monitoring of finances and payments owed, increasing the efficiency of your credit department.

Harness the Benefits of Trade Credit Insurance for Your Organization

Trade credit is a powerful tool that can help you accelerate your commercial development and improve your customer relations, with limited risk if properly controlled. To learn about use cases, coverage cost, policy terms, types of trade credit insurance, and more, download our guide to trade credit insurance.

Euler Hermes, the world’s leading trade credit insurer and a recognized specialist in the areas of surety, debt collection, fraud insurance, structured trade credit and political risk.