Trade Credit

In an ideal world we would all receive payments within moments of issuing an invoice. We don’t live in an ideal world and reality says that standard business practice is to pay on the 20th of the following month or with longer credit periods. It is part of the cost of doing business and making the sale and in most cases there is nothing wrong with that.

Should your debtor suddenly liquidate or become bankrupt you become a creditor potentially among a long list of creditors. By the time a receiver finishes with that debtor after a fairly long period of time and informs you that there is not going to a payment or recoveries are small, will your business be able to sustain this?

If your customer simply doesn’t pay and refuses to answer your letters and phone calls, can your business sustain that nonpayment?

And if your customer is overseas are you going to be able to communicate with receivers or know how to register your debts in a foreign court?

A Trade Credit insurance policy from Apex can assist. Should your customer be placed into receivership or liquidation the insurer will make payment to a prescribed percentage of the loss. This is usually paid very quickly. Should your customer refuse to pay or ignore your followups then the insurer will act as a form of debt collection agency, taking over recovery itself – if unsuccessful then again that percentage of loss will be made.

This means that you have the cash needed to finance your business, particularly when you are running trade financing or overdraft facilities. An insurance policy can be assigned to your bank as an added surety to the bank that your debtors are covered meaning that the bank itself will get paid in the end. There may be potentially favourable outcomes to this for your business financially as well from the bank.

Insurance cover can be run to cover overseas or New Zealand debtors or a combination of both. There are some occupations for which special policies can be arranged such as advertising agencies.

As with most insurance policies the idea is to protect the balance sheet of a business and ensure continuity and viability of that business. Should the business have to pay out of its own reserves or facilities then the balance sheet is weakened. Not insuring adequately or at all can potentially lead to the end of the business.

No business allowing extended credit terms or running trade financing should be without this cover.

Apex can provide cover for all of your insurance needs, whether Property, Liability, Marine, Accident & Health, Trade Credit and beyond.

We tailor-make to your requirements dependant on your business needs.

Claims examples:

– A shipment of meat was sent to Italy on an “open account”. Despite follow-up from the seller and further recovery attempts by the Trade Credit insurer through their local Italian branches, the customer could not be traced and the insurer paid 90% of the loss as per the policy allowances.

– A building materials supplier provided goods for a development of apartments in Auckland. The developer knew there was an issue with the quality of the workmanship and also hadn’t pre-sold enough apartments off the plans to make the project viable or even likely to be completed, so went into voluntary liquidation. The supplier’s Trade Credit insurer made payment according to the policy allowances at the point that the loss was quantified. The insurer then became a creditor as opposed to the supplier. The supplier was able to show his bank that his cashflow had only been temporarily affected and his bank was also happy with the outcome.​

To discuss further or for any queries, please contact your Apex Broker or our Technical Manager, Mark Robb: markr@apexinsurance.co.nz