Pramit Joshi is the Senior Director at Moglix. He is a corporate banker, who has worked across Trade Finance, Treasury, and Financing Solutions at companies in India and the Middle East. He was the Co-Founder of NuPhi - India and Singapore-based Cross Border Trade Finance and Technology Solutions.
Let us imagine your business has just signed a contract with an overseas client, and you are excited about the growth opportunities that lie ahead. But unfortunately, if the client fails to pay the dues, it would lead to a significant financial loss to your business. And, this is a real risk that businesses face in international trade.
International trade has evolved into a crucial aspect of the global economy. However, with the increasing complexity and risks that come with cross-border transactions, businesses need to be prepared for potential losses that may arise from non-payment of debts. That is where credit insurance comes in - it acts as a safety net for businesses in international trade. In addition to credit insurance, there is also an option to avail of factoring against your export receivables where a factoring company purchases your receivables and owns the risk of buyer non-payment.
Credit insurance, also referred to as trade credit insurance, is a specialized insurance product that shields businesses from losses caused by the insolvency or default of their customers. It ensures that businesses are paid for their goods or services even if their customers fail to pay. While credit insurance only protects against loss and pays when a claim is filed whereas factoring pays 80% or 90% of receivables value upfront.
This is a must-have risk protection for businesses, especially for SMEs, which would in turn, enable companies to expand their operations, take on new clients, and grow their businesses without being restricted by cash flow constraints.
Credit insurance or Factoring empowers businesses to pursue international opportunities with confidence as it protects them against the multitude of risks including currency fluctuations and political instability. Hence, choosing the right credit insurance or factoring provider is critical to ensuring that businesses receive adequate coverage and support. Some of the key factors that you can consider while choosing your credit insurance providers include:
When evaluating the provider, it is important to assess their financial strength and stability. This can be determined by reviewing their credit rating, financial statements, and other publicly available information. A company with a strong financial position is better equipped to meet its obligations and honor its commitments. It is also a good idea to check if the company has a history of paying claims/handling buyer defaults and settling promptly and efficiently.
For example, institutions such as Export Credit Guarantee Corporation of India and Tata AIG Insurance Company Limited have a long history of providing credit insurance services in India and have a reputation for financial stability, indicating a strong ability to meet their financial obligations.
There are many new-age Factoring Companies that provide seamless factoring solutions: Credlix (A Moglix Company), India Factoring and SBI Global Factors are some of the renowned factoring providers.
Navigating Coverage Areas
Businesses often struggle with choosing a credit insurance and factoring provider that can offer coverage in the countries and regions where they do business, as well as in the specific industries they operate in. That's why it's worth doing your research to find a provider that can meet your unique needs. For example, you might consider HDFC Ergo General Insurance Company Limited, which offers coverage in over 100 countries, making it a great option for businesses with a global reach.
Alternatively, you might look at Credlix, which offers coverage across a variety of industries, including manufacturing, construction, and retail. Finding the right coverage area of your receivables can provide added assurance that they understand the risks and challenges that your business may face and can offer tailored solutions to meet your needs.
Assessing Products and Services
Business leaders must consider the range of products and services provided by a credit insurance provider. This can involve looking at the types of policies they offer, the coverage limits, and any extra services or tools to assist them. Take SBI General Insurance Company Limited, for example. They offer tailored credit insurance policies that can be customized to meet your specific requirements. On the other hand, ICICI Lombard General Insurance Company Limited provides online access to policy information and claims management, making it easier to manage your coverage. Also, Credlix a Factoring company, which is more than just credit insurance coverage that you take, offers financing solutions without a long waiting period, lengthy claim filing paperwork, and a complex approval process.
By exploring the various products and services available in the market, you can find a credit insurance provider that offers the right level of support to safeguard your business interests.
Exceptional Customer Service
The importance of having reliable customer service from a credit insurance provider is undeniable for businesses. It can make all the difference in handling claims and getting the support businesses require. That's why it is recommended to look for providers with a dedicated customer service team that's knowledgeable and responsive.
For instance, Bajaj Allianz General Insurance Company Limited is recognized for its exceptional customer service, with a team of experts available to assist businesses with any concerns or questions they may have. With dependable customer service, you can have peace of mind knowing that you have a partner who is committed to protecting your business interests.
When choosing a credit insurance provider, the cost of premiums is a crucial factor to consider. You want to make sure that you are getting comprehensive coverage that meets your business needs, without paying over the odds. It's worth comparing premium costs across different providers to find the best value for your money. However, it's important to keep in mind that the cheapest option may not always be the best choice if it does not provide sufficient coverage. You need to ensure that the coverage offered by the provider is adequate for your business needs.
As the global market for trade credit insurance continues to grow at an impressive rate, it is clear that this essential tool has become increasingly crucial for businesses of all sizes. With a current market size of over US$ 9.56 billion and a projected CAGR of 11.1% over the next decade, trade credit insurance is expected to play an even larger role in supporting global trade in the years to come. Additionally, the fact that trade credit insurance supports nearly $3 trillion in trade on open terms each year globally speaks volumes about its dependability.
As an estimated 80 to 90% of global trade is supported by some form of trade credit insurance, businesses engaging in international trade, should strongly consider utilizing this essential tool to mitigate risks and expand their operations. By considering the factors discussed above, businesses can make an informed decision and choose a provider that meets their needs. As businesses continue to navigate the complexities of the global market, tapping into the protection and support provided by trade credit insurance is essential for achieving success and securing a brighter future.
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