Credit Guarantee | October 31, 2018

As the year winds down, many companies will be glad to see the end of 2018. It has been one characterised by economic turmoil which means that both citizens and corporates have had to tighten their belts. We entered into a technical recession in September. According to IOL News, the Minister of Finance, Tito Mboweni, said that if we do not stem this poor economic growth, “South Africa will soon be running to the International Monetary Fund with a begging bowl”.1

Understanding Trade Credit Insurance And It’s Value For Money

As a corporate citizen, you need to take heed of the minister’s words and start planning now for better prospects in 2019. Your first point would be to look at your business strategy for the year ahead. Do you have trade credit insurance for your business?

Trade credit insurance is your backup plan and safeguard

When planning your business strategy for the year ahead, getting trade credit cover should be at the top of your list. This is your business backup plan of sorts in the event that things go pear shaped and your debtors don’t pay when they are supposed to.

Trade credit insurance protects businesses and providers of services against the risk that their buyer does not pay or pays very late. Your trade credit insurance policy will pay out a percentage of the outstanding debt in the event that this occurs.

Trade credit insurance opens up opportunities for growth

Having trade credit cover with CGIC helps you make shrewd decisions about who you do business with. When you are equipped with reliable information from a credible source regarding which customers are likely to pay versus those likely to default, you can trade with more confidence and success.

In addition, trade credit insurance can help you access more favourable borrowing terms, which can give your business more opportunities to innovate and expand.

Top Reasons Why You Need Trade Credit Cover

Mark Hoppe, Managing Director at Atradius, Australia and New Zealand, believes there are five reasons why you should get your trade credit insurance in order at the start of a new year.2

  1. Trade credit insurance lets you manage cash flow for peace of mind
  2. Increase credit lines and lower the cost of borrowing
  3. Getting trade credit insurance allows for flexible payment terms
  4. Reduce business exposure to risks
  5. Gain valuable insight on prospective customers

We’ll explore these reasons in more detail.

1. Trade credit insurance lets you manage cash flow for peace of mind

You should ensure that your company’s cash flow is not interrupted because this may result in your operations coming to a standstill. In this regard, it is important that you have credit insurance which will allow for business continuity in the event of non-payment or slow payment.

2. Increase credit lines and lower the cost of borrowing

With trade credit insurance your company will have the ability to increase its credit lines. At the same time, it can receive favourable borrowing terms from lenders. Hoppe states that this is also advantageous for growing the scope of the business.

3. Getting trade credit insurance allows for flexible payment terms

Having a trade credit policy with a reputable insurer oftentimes results in leniency from borrowing institutions. Therefore, you are more likely to be offered flexible payment terms than a company without trade credit insurance.

4. Reduce business exposure to risks

According to Hoppe, on average, a business’ receivables asset makes up about 30-40% of the ledger. This means that your company cannot afford to be without the appropriate trade credit insurance if it is to reduce its exposure to significant risks.

5. Gain valuable insight on prospective customers

Insights about what is happening on the ground in your industry are valuable for your business. At CGIC, we procure this information on your behalf. This may include investigating prospective clients, their stability, creditworthiness as well as their general market reputation. This will allow you to make strategic business decisions or even to take on higher risk business without the fear of non-payment.

Trade Credit Is A Tool For Reducing Risks

Trade credit insurance need not be overwhelming and confusing. It is meant as a tool to help effectively cover your company’s receivables business and maximise profits in the long run by ensuring that risk is reduced.

Credit Guarantee has over 60 years’ experience of helping our clients grow their business without risk. This is our ethos; built on the back of a skilled team who fully understand the needs of our clients. We have been preserving their cash flow, protecting their profitability and enabling trade throughout South Africa and all over the globe. Our greatest achievements are our clients’ success in business. Credit Guarantee is an authorised financial services provider No. 17691.


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