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Companies often face the risk that one or more of their key customers will not be able to pay their trade debt. Bankruptcy as a business strategy, leveraged buyouts, fraud, civil unrest, domestic and international developments, natural disasters — these are just some of the exposures that can impact a customer's ability to pay.
Trade credit insurance can help protect companies from the harmful effects of buyer insolvency or slow payment. 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 also enables us to advise on the source and type of cover most suitable for a particular situation. In addition, Marsh works extensively with underwriters to expand market capacity and develop improved trade credit products.
With trade credit insurance in place, companies can extend more credit to creditworthy customers while reducing the risk of nonpayment, thereby promoting safe sales expansion. Favorable bank financing can be more easily obtained, assigning the insured accounts receivable as collateral.
Trade Credit Coverage
A trade credit policy can cover an insured for up to 95 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 be included in coverage for trade credit. Credit insurance can also be obtained to protect against domestic insolvencies, or 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.
Risks may range from a company's largest domestic exposures, to customers on a worldwide basis. Multiple-buyer policies can cover sales periods of one to two years. The underwriting market includes government supported export credit agencies (ECAs) and a host of private U.S. and European commercial insurance companies.
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Related Information
Article: Marsh's Evan Freely and Jerry Friend Write About Trade Credit and the Global Credit Crisis in World Trade
White Paper: Trade Credit Insurance and the Global Credit Crisis
Article: Trade Credit Insurance Protects Receivables and Enhances Credit Access
Risk Issue: Trade Credit
Trade Credit Contacts
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