3 Must-Haves in a Trade Credit Insurance Provider

Shop for the right plan with the right provider

Fourth in a five-part series. Click here to read part one, part two and part three.

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In my last post, I discussed the three primary reasons why companies don’t purchase trade credit insurance and how these companies may have failed to realize the benefits of trade credit insurance, one being that it could potentially pay for itself.

There are many firms, major brokers and third-party distributors that offer trade credit insurance – they key is picking the right one.

The largest firms selling trade credit insurance directly are Euler Hermes, Coface and Atradius.

Then there are the major brokers and third-party distributors, like UPS Capital Insurance Agency Inc.

Third parties have some significant advantages, as they can evaluate all of the industry offerings and recommend the best options customized for your business.

They also may have additional capabilities; for example, UPS Capital can see more holistically across the entire supply chain and provide a layered approach to risk.

There are three basic principles a company should consider when buying trade credit insurance.

[Also by J. Paul Dittmann: 10 Steps to Mitigating Transportation Risk]

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Supply chain expertise

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The key to picking a trade credit insurance partner is choosing the right one.

It is important to purchase trade credit insurance from a company that understands supply chains and their inherent risks. Many bad debts have their roots in supply chain risk.

The supply chain is responsible for delivering the “perfect order,” an order that is on-time, complete and damage free.

Any perceived or actual deviation from that can cause the invoice to be disputed by the customer and eventually result in an invoice being uncollectable.

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A true partner

Screen Shot 2016-05-10 at 11.34.39 AMBuy from a firm that is willing to take the time to learn your business and can make the claim collections process simple and easy.

The trade credit insurance provider should partner with the company to develop a strategy and a policy to identify the company’s exposure to risk and customize a policy based on the level of risk.

The trade credit insurance provider should clearly be interested in a long-term relationship not just a one-off transaction. Once a firm purchases trade credit insurance, the relationship with the insurer should remain active. The trade credit insurer should be a partner to assist in managing ongoing risk.

It should also routinely monitor a firm’s customers to ensure their continued credit worthiness and recommend changes in the customer portfolio.

A credit partner should be able to monitor changes in corporate solvency on a daily basis. Forty million global companies are in the databases used by the largest credit insurers.

And finally, the trade credit insurance partner should be proactive in helping complete the claims forms and make sure the paperwork is submitted correctly. In addition, the trade credit insurance partner may even work with another firm to manage an emergency situation.

In one case, a shipment of perishable food to Russia was blocked when nearing port due to a geopolitical dispute. The trade credit insurer helped the company quickly find another buyer, repackage the product and deliver it to the new customer.

[Also by J. Paul Dittmann: Hidden Risks in Your Supply Chain]

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Quick response customer evaluation

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The bottom line is that trade credit insurance should be purchased from a supply chain partner.

The trade credit insurance provider should assist with quick response account research and risk mitigation strategies.

Decisions must be made quickly when a company is trying to close a sale with aggressive competitors and needs to expand credit limits.

With a massive amount of data and resources, trade credit insurers are in a far better position to do this than a typical firm.

The bottom line is that trade credit insurance should be purchased from a supply chain partner, not just an insurance expert. It should be purchased from a provider that can customize a process to fit the company’s needs.

These principles are key in choosing a credit insurance company. But there are some factors you need to know before proceeding, such as how the price is set and what is covered.

In my next (and last) post, I will answer these questions and provide advice for companies about trade credit insurance.  goldbrown2


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J. Paul Dittmann, Ph.D. is the Executive Director of the Global Supply Chain Institute at the University of Tennessee. Dittmann comes to the University of Tennessee after a 30-year career in industry. He has held positions such as vice president, logistics for North America; vice president global logistics systems; and most recently served as vice president, supply chain strategy, projects, and systems for the Whirlpool Corporation.

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