Page 254 - India Insurance Report 2023- BIMTECH

242 India Insurance Report - Series II

The financial impact of trade credit insurance is generated through higher levels of repeat business,
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lower levels of customer queries and disputes, more profitable sales, better DSO and on-time payments,
lower levels of bad debt and incidences of fraud and lower overall average costs of credit management.
Trade credit-insured firms also have access to lower costs and better-quality credit information and
market intelligence.

4. Final Remarks

Trade credit insurance is a financial tool which manages both commercial and political risks that are
beyond a company’s control.
Companies invest in trade credit insurance for a variety of reasons, including:

1. Sales expansion – if receivables are insured, a company can safely sell more to existing customers or
go after new customers that may have been considered too risky without insurance.

2. Expansion into new international markets.

3. Reduce bad-debt reserves – this frees up cash for the company. Also, trade credit insurance premiums
are tax deductible, but bad debt reserves are not.

4. Better financing terms – in many cases, a bank will lend more against insured receivables; this may
also provide cost advantages.

5. Indemnification from customer non-payment.

6. Establishes a fundamental strategy to protect the organization from an unexpected catastrophic
event. 15
Balance sheet strength is ensured, cash flows are protected, and loan servicing, costs, and asset valuation
are enhanced. While protecting capital, cash flow, and earnings are what most companies recognize as
the main reasons to purchase trade credit insurance, the most common reason to invest in insuring their
accounts receivable is because it helps them increase their sales and profits.

14 Days Sales Outstanding

15 D. Briggs, B. Edwards, Credit Insurance. How to reduce the risks of trade credit, Woodhead- Faulkner,
1988, p. 182-193.