Trade Credit Insurance | An Important Trade Receivables Protection

What does Trade Credit Insurance means to business organisations, in particularly for those that operate in Malaysia?

Trade Credit Insurance was developed to provide solutions to inherent risk of buyers defaulting and/or insolvency. Trade Credit Insurance is also a financial risk management tool which covers the losses sustained by a firm because of the non-payment of a trade debt.It is really about according protection to a business organisation’s trade receivables…..

The following are highlights of the importance of Trade Credit Insurance and its benefits that companies in Malaysia can enjoy when opting to take up the insurance cover:

  1. Strengthening the balance sheet via protecting your receivables against potential loss due to buyer’s risk of defaulting in payment and/or insolvency. During crisis in 2008, we have seen many companies foreclosure or barely could cope with surging expenses due to failure of buyers in making payment that jeopardized the company’s cash flow, assets and liabilities. Affected badly were those prime sector contributors such as Electronics and Electricals, Oil & Gas Industry, etc. Trade credit protection provides shield against these inevitable risks. Credit control procedures by companies may reduce the impact but will not free the inherent risks.
  2. While enjoying the comfort and less anxiety, also will be enjoying a “double tax deduction” on premium amount paid for exports. This in line with government’s incentive to promote the importance of trade credit insurance/protection. In addition to this, will boost your profit via declaration of lesser income tax.
  3. Strengthens the company’s credit rating by rating agencies via protecting the largest current asset on most balance sheets i.e. Accounts Receivables. This can be an competitive tool for companies competing in the market and aid companies in getting more business deals.
  4. Means or tools while negotiating with banks for better acceptance commission for bank financing. Opting for credit insurance will ease companies as well as banks predicament for better credit risks exposure and therefore for higher possibility of high loans sanctioned.
  5. Trade Credit Insurance as an expansion tool. Developing business and sales via acquiring new buyers or increasing sales to existing clients without anxiety of losing payments as Trade Credit Insurance protects against non-payment / insolvency (bankruptcy) of buyers

 

By taking up Trade Credit Insurance, a business organisation would have entered into a package consisting of:

  1. Credit insurance,
  2. Vital business information concerning the debtors and markets, and
  3. Debt Collection assistance and advisory

….something of a “3 in 1” solution….

Do you want to know more about the Basic Practices & Principles and also join us on our Webinar? Subscribe by letting us know some information about your organisation so that we can plan our programmes to cater for you.

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On Commercial and Political Risks

In a nutshell Trade Credit insurance provides cover for commercial and political risks faced by a business when selling goods either in domestic or export markets.

The usual scope of coverage offered:

  1. Commercial Risks – Bankruptcy or Non-payment by your buyer
  2. Political Risks – Political risks faced by a business when selling goods in domestic and export markets

Insured Percentage allowed in the policy coverage is usually between 70% to 90% of the total credit value.

Premium Rate:   Cost of Coverage is averagely 0.5% and below on your open account turnover.

All of your claims will be paid, provided that your customers are covered under the terms of the policy and that the amounts of debts outstanding falls within the approved credit limits.

 

(Summary Perspectives) Benefits of Trade Credit Insurance to your Business:

  • Reduce bad debt provision (One big loss could wipe out profits gained in the last many years).
  • Able to grow your sales with reduced worries as we’re helping to monitor your debtors.
  • Secure better borrowing terms with lenders (Able to use the Credit Insurance policy as a collateral to banks)
  • Gain competitive advantage (only a few companies can command cash/ or decline credit terms)
  • Improved cash flow – Received payment for unpaid invoices
  • Double Taxation Relief on export sales – thus maximising your profits

 

Hopefully you and your organisation find this useful and do remember to check out the OPT-IN BOX above, sign in with FULL DETAILS so that we can process the information and plan something useful for the Malaysian markets.

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