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Trade Credit Insurance: What Is It & How Does It Work?

Companies running trading businesses frequently come across issues related to non-payment of debts, unpaid invoices thereby leading to company losses or bankruptcy. In order to safeguard company from incurring losses arising from non-payment of trade related debts, trade credit insurance comes as a rescue.

 

Trade Credit Insurance: What Is It?

 

Trade credit insurance (TCI) is a broad form of coverage that protects companies against bad debts, and unpaid invoices in particular. TCI works differently when compared to any other type of insurances. TCI helps businesses to make a claim in the event of a client refusing to honor their debt, resulting in a payment that covers some or all of the money owed. Companies operating overseas in Singapore, TCI can be useful.There might be situations where a debtor in unable to pay the debt or unwilling to honor the initial agreement, TCI can come to rescue in many other situations.  For example, if a Singaporean company is exporting a product to a region that has been undergoing political risk and is on the verge for an outbreak of a war – TCI makes it possible to secure a payout from an insurer even if the initial client can't be reached or is unable to provide payment.

 

Although every business operating internationally should have a comprehensive trade credit insurance policy, the risks are significantly greater for SMEs. This is because any interruptions to cash flow can make it difficult to secure materials and continue operating, leading in worst-case scenarios to bankruptcy. Accordingly, small business owners should be particularly aware of the value of TCI to protect their organizations’ accounts receivable.

 

What are the types of trade credit insurance?

 

Every business needs are different from each other. Therefore, the best type of trade credit insurance cover for a particular company can vary significantly. Before selecting a policy, there are few factors that should be taken into account. These are:

  • When selecting a policy include the countries being exported to
  • how much information a business has on its clients' credit history
  • financial factors such as annual turnover

Coface, provides a wide range of different TCI policies that are tailored to the individual needs of various-sized businesses. These include:

  • EasyLiner for SMEs - This product is specifically designed for small-to-medium businesses operating both within Singapore and internationally. It is a credit insurance offer that protects you against unpaid invoices.
  • TradeLiner for mid-sized enterprises -Trade Liner provides a slightly more comprehensive level of protection for businesses with diverse international interests, offering stability against commercial, political and environmental risk.
  • Coface Global Solutions (CGS) for multinationals -This product is tailored for companies with larger clients across multiple countries, operating with higher turnovers and increased levels of risk. CGS is designed to offer flexibility in order to account for the trading differences that can arise between different regions.

In addition to these set types of trade credit insurance,Coface's Single Risk solution is available for one-off projects. The flexibility of a Single Risk solution makes it easy to tweak a TCI policy based on the particular risks and challenges of a certain market or industry.

Each of these policies is designed to best suit the needs of particular businesses, reducing the risk of unpaid debts impacting cash flow as much as possible. To further narrow down the options and ensure you fully understand the trading risks faced by your business, it may also be a good idea to request a Customized Credit Opinion. This involves a full assessment that will provide a comprehensive analysis of the risks of non-payment associated with your customers, making it far easier to select an appropriate TCI policy.

 

Here's why you should choose Coface

 

  • Experience – Apart from providing trade credit insurance services and Customized Credit Opinions, Coface, helps Singapore businesses to exporting overseas by providing experience and expertise.
  • In-Depth Information - Before signing any trade agreements, Coface provides an in-depth analysis on potential trading partners and whether or not they will be a good fit or not. If an exporter requires any detailed information of any client, our team will help in bringing out the credit history. In case they find any red flags, we'll be able to provide a comprehensive report on the associated risks, allowing business owners to make an informed decision on whether or not to proceed with trade.
  • Understanding the Risk Factor - We'll also identify any potential issues unrelated to the financial side of the equation in order to provide a full picture of a potential trading partner. These potential issues can include war or natural disasters, as we discussed earlier.
  • Provides Global Debt Collection Service – Coface also provides comprehensive global debt collection services, in the event of an unpaid debt being retrievable. In these situations, our team may be able to recover what's owed without having to go through the full claims and indemnification process. Coface has been designed to help businesses trade overseas with confidence.

All of these varied services, from trade credit insurance to debt collection, we are there to help you. To learn more about Coface, get in touch with us today: 

Benefits of Trade Credit Insurance

For any business, accounts receivable is considered to be the largest asset. A substantial risk comes to your business when customers become insolvent or do not pay their bills on time. Bad debt becomes a huge problem for the overall functioning of the business. In order to overcome and deal with these difficult situations, Coface provides trade credit insurance policy. Trade credit insurance is a form of insurance that protects the account receivables against non-payment of a business. Whether a company intends to establish trading with existing customers or seeking new markets, trade credit insurance protects the cash flow and balance sheet of the company against the unexpected shock of non-payment. TCI is a tool which is used to reduce or eliminate the risk of non-payment of commercial debt.

 

So, how does trade credit insurance work, and what are its benefits to you and your company?

 

  1. 1.Improvement of Cash Flow For Business - For smooth running of business, continuous cash flow is important. Trade Credit Insurance policy protects businesses against fluctuations in cash flow especially that is caused by bad debts and unpaid invoices. Without TCI, there can be a significant impact on the amount of money coming through the company that can lead to many difficulties that range from being unable to purchase materials all the way through to effects on payroll.

For small businesses there can be a more severe situation – such as unpaid invoices that can lead to bankruptcy or insolvency making it very difficult for a company and its owners to bounce back in business in the future. With trade credit insurance, businesses have a safety net, thanks to the indemnification of unpaid debts. This ensures that even if a particular client continually fails to pay what they owe, a business will still be able to operate as if they’d been paid, while pursuing the debt through legal or other means.

  1. 2.TCI provides access to credit expertise - Unpaid invoices & bad debts can have a severe impact on a business. In order to counter both unpaid invoices and bad debts, trade credit insurance policy is of great help. TCI policy and insurance company can assist in providing you with access to in-depth information on businesses and markets. This can also help in assessing the risk and identify which organizations or individuals are more likely to leave your organization with bad debts, allowing you to either set strict credit terms or decline their business altogether.  

For international trade, exporters often need to deal with companies that they don’t know very well. Credit expertise acts as life savior which helps in avoiding risk and ensuring all account receivables are paid on time. When taking out a TCI policy with Coface, businesses also gain access to a professional financial assessment of each customer. This means that even if a long-term client has a good track record of paying their invoices, you’ll still be able to know for sure whether or not there’s any risk of non-payment in the future. These assessments also factor in political risk, meaning that if you have a trading partner that operates in a turbulent part of the world, you’ll know if there’s any risk of the relationship falling through due to external factors – leaving you with irretrievable accounts receivable.

  1. 3.TCI can help grow your business – Choosing the right trade credit insurance can provide a lot of benefits for the company. Apart from debt indemnification and credit expertise there are several other benefits for a company.  One of the most significant benefit is the ability to access better rates when applying for a business loan. Whether a loan is required to purchase materials or new piece of equipment’s or large premises, but regardless of your financial goal, a lender is far more likely to see your company as risky if you don’t have trade credit insurance in place, and you’ll pay a premium as a result. Accordingly, by taking out TCI and making sure to work closely with a credit risk specialist, it will be easy for you to prove to the lenders that your business has constant and consistent cash flow and is more than able to pay back a loan. We at Coface, offer various types of TCI that are designed for businesses of different sizes. This means that regardless of whether you’re working in an SME or an international enterprise, there’s a Coface policy that can offer the very best level of protection, keeping your business running smoothly and helping minimize the risk of bad debts and impacted cash flow.

 

To find out more, get in touch with the Coface team today.

What will a post-COVID-19 world look like for corporations?

The coronavirus has led to a once-in-a-generation pandemic, and its impact on the world economy stands in stark contrast to even the 2008 global financial crisis. Entire industries were shut down as GDP tumbled, international trade sunk and unemployment skyrocketed amid lock downs and stay-at-home orders.

 

But as economies and societies begin to recover from COVID-19, the focus is turning toward what a post-pandemic world will look like. Businesses and employers will need to take bold steps to spur and sustain a recovery, as well as earn the trust of wary consumers and work forces. With the rules of international trade forever changed, import/export corporations will particularly need to commit to strategy and business transformation.

 

In order to prepare, here are some of the themes and trends shaping the post-pandemic world for corporations.

 

The future is uncertain
The only definite thing about the coronavirus is nobody knows what path the pandemic will take. The rapidity with which the virus moved across borders caught governments and commerce by surprise, and continues to be difficult to plan for. Part of that challenge is the disparate responses taken by different countries. Another piece to the recovery is the timeline for a vaccine, as well as the distribution of it.

 

So what does this mean for businesses? Near-term agility and flexibility will be crucial to seeing through the pandemic. There are simply too many "what-ifs" to plan for. According to consulting group Bain & Company, there are three pillars of pandemic-era strategy:

  • Adaptability
  • Resilience
  • Prediction

As Bain & Company notes, organisational leadership amid COVID-19 is more about action and less about planning. To that end, companies that can prioritize bottom-up problem-solving and focused learning can be most adaptable to the shifting tides of the pandemic. Resilience speaks for itself, but the prediction aspect of strategy calls on corporations to continually think about customers, operations, technology and social issues.

 

Sweeping organisational change is coming

 

The pandemic laid bare many of the inadequacies of corporate structures. In order to thrive and lead in the post-pandemic world, corporations will need to consider a wide range of operational and organisational changes. These pivots will be needed not only to provide solid footing during a recovery, but also to chart a path toward growth and success once again. The most nimble and ambitious companies will likely be most able to fashion their brands into post-pandemic leaders.

To that end, consulting firm McKinsey & Company surveyed company leaders across sectors about what changes they might implement in response to COVID-19. Some of the top changes they considered related to:

  • Structure and cadence of meetings (80%)
  • Day-to-day leadership (78%)
  • Use of technology and systems (76%)
  • Core processes and how the operation is run (72%)
  • Approach to talent recruitment and skills requirements (69%)
  • New cultural aspirations and behaviours/mindsets (60%)
  • Approach to innovation (59%)
  • Decision-making and organisation of business hierarchies and structures (59%)

In order to efficiently and effectively implement change, corporations will need to lean on change management. What is change management? Essentially, it is a methodology that's used to help institute fundamental organisational change, whether in processes, policies, tools or corporate missions and messages. Some aspects of change management to focus on include:

  • Generating grassroots buy-in from the bottom up
  • Emphasizing communication and collaboration across departments
  • Setting standards and tracking metrics of progress

Remote work is here to stay

Social distancing promises to be a feature of daily life for a long time to come. That means remote work will also be a widespread business practice during the near and long term. Already, work-from-home policies were highly popular with Australian employers. A 2019 survey from CareerBuilder found 68% of responding organisations offered some form of remote work. In order to succeed with remote work, organisations will need to address considerations like:

  • Communication tools : Videoconferencing technology is a must, but not just any solution will suffice. Businesses need to find a tool that is easy to use, provides wide functionality (e.g., whiteboarding) and is cost-effective.
  • Hybrid shifts : Transitioning employees back to the office will happen at some point. When that day comes, a hybrid workforce might work best. This approach calls for rotating groups of employees to alternately work from home and then at the office.
  • Head of remote work : One hiring trend created by the pandemic is the demand for heads of remote work. Installing a manager of remote work may help your company more efficiently manage employees and productivity.

Resilient supply chains will be key

The closing of international borders threw a wrench into the plans of countless businesses, particularly those with global supply chains or international trading partners. In order to avoid, or at least mitigate, disruption like that in the future, these corporations will need to pursue transformation of supply and value chains. Resilience is the ultimate objective here, and according to accounting firm KPMG, digital transformation is the ideal pathway to achieve it.

 

What does digital transformation of the supply chain look like? It includes:

  • Automation : Implementing digital tools that streamline workflows and processes helps to remove manual work, thereby limiting errors and operational bottlenecks.
  • Assistance : These are solutions that benefit your business by enhancing the performance of your workers. An example is a smart warehouse with automated picking systems and robotics for order fulfillment.
  • Augmentation : Emerging technologies are increasingly gaining footholds in manufacturing, logistics and all other industries. Tools like artificial intelligence and machine learning can help businesses improve core functions, as well as capitalize on opportunities in the post-pandemic world.

Talk to COFACE about solutions for the future

 

It will take time and effort to adapt in the recovery, and business leaders will need all the help they can get. A partner that can provide solutions that help you get paid and better understand the financials of your trading partners could be that advantage you need to make it past the pandemic and thrive into the future. Want to learn more about COFACE's trade credit insurance (TCI) and business intelligence products? Contact us today.

A Major APAC Trend - Payment Deterioration, Even Before COVID

The full economic impact of the coronavirus pandemic may not be understood for years to come. However, one very apparent effect of the crisis was a sudden cash flow crunch experienced by businesses of all sizes and industries. With revenue sources dried up, many companies were forced to miss rent or trade partner payments. While business conditions have improved for some, sizable challenges still exist. This is particularly the case for importing and exporting businesses. Border restrictions and plunging demand put many operations in a vice; but the real concern is payment delay deterioration. Late payments was already a major trend in international trade before COVID-19 struck, however. Data collected by Coface in 2019 found 65% of surveyed businesses in the Asia-Pacific region (APAC) said they experienced a late payment, an increase over the 63% that said the same in 2018.

 

Let's take a closer look at payment deterioration in APAC and what effects the pandemic might have on the trend.

 

Payment deterioration a trend across APAC, economic sectors :

Though COVID-19 likely resulted in a crush of late or unpaid payments, the wave of payment deterioration was already growing in APAC. As mentioned, the region saw an increase of companies reporting late payments from 2018 to 2019 — from 63% to 65%. Overall, payment delays averaged 85 days, which was 10 days longer than the 76-day average seen in 2015.

 

Of delayed payments observed in 2019:

  • 59% were late by fewer than 60 days
  • 16% were late by 60 to 90 days
  • 6% were late by 90 to 120 days
  • 19% were late by more than 120 days.

China faced the highest share of payments late by more than 120 days (37%), while India saw only 1% of late payments more than three months in arrears. Delays were also longest in China, averaging 96 days; Malaysia (84 days), Singapore (71 days) and Thailand (69%) followed in the longest delays.

In terms of delays by, in 2019 late payments averaged:

 

  • 88 days in construction
  • 86 days in ICT
  • 83 days in energy
  • 82 days in transportation
  • 73 days in pharmaceuticals
  • 70 days in retail
  • 63 days in agri-food
  • 61 days in textiles
  • 60 days in automobiles

ICT (28%), energy (26%) and construction (24%) had the highest share of payments delayed more than 120 days.

 

Companies will need to adapt, Coface solutions can help

 

As the end of 2020 approaches, much of the country is still struggling with the virus, resulting in sustained downward pressure across the global economy. This, combined with payment deterioration, can squeeze APAC companies that are built on international trade. Business will need operational flexibility in order to adjust to changes wrought by the pandemic. One of those considerations might be longer trading terms. Negotiating more lenient payment terms may be able to help trading partners strike a mutually beneficial agreement.

 

By country, 2019 payment terms averaged:

  • 91 days in Japan
  • 86 days in China
  • 72 days in Taiwan
  • 64 days in Malaysia
  • 63 days in Hong Kong
  • 54 days in Singapore
  • 53 days in Thailand
  • 42 days in India
  • 36 days in Australia

In any case, payment terms — or the length of time between a purchase and a payment due date — were already on the rise in Asia-Pacific in 2019. Events 2020 may push that trend further as longer payment terms allows for greater cash flow flexibility.

 

As any business owner would know, the seas of international trade are particularly choppy amid COVID-19. Even once the pandemic abates, business conditions will be difficult to navigate. With a trusted partner for trade credit insurance (TCI) and other solutions at your side, your business can benefit from resources to help power your operations through uncertainty. Protect your organisation from the risks of unpaid invoices with Coface's help. You can also leverage our business information reports for detailed credit analyses of trading partners so you can always make the best decision for your business.
Contact us today for more information about our products and services.

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