Page 249 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 237

Development of Trade Credit Insurance

as a Credit Management Tool

- Prof. Jacek Lisowski
28 Full Professor, Head of Department of Insurance,

Poznañ University of Economics and Business (PUEB), Poland

1. Rationale For Trade Credit Insurance

Trade (commercial) credit is a basic element of business transactions in market economies. The
majority of commercial transactions are carried out on the basis of credit (open account). Commercial
credit is an important instrument to attract new customers. Commercial credit exposure depends on the
trends in delay in payments (payment practices), the number of insolvencies, the bankruptcy system
and the quality and availability of credit information.

With transactions on a trade credit basis, companies not only lock their liquidity into a specific
customer relationship but also take the risk of not being paid. In business surveys, financial difficulties
are the highest-ranked causes of business failures. Financial losses caused by the insolvency of a debtor
can be a major cause of liquidity constraints and even bankruptcy. 1

1 Credit insurance for European SMEs. A guide to assessing the need to manage liquidity risk. Enterprise
Guides. Directorate-General for Enterprise European Commission, p. 3.