Credit insurance helps businesses manage the financial risks of expanding into new markets. It protects against non-payment by customers, covering up to 90% of unpaid invoices. This allows companies to confidently extend credit terms, improve cash flow, and access better financing options. With rising U.S. business bankruptcies projected to increase by 23.5% in 2025, credit insurance offers a safety net for both domestic and international growth.
Key Benefits:
- Protection Against Non-Payment: Shields revenue from customer defaults or insolvencies.
- Improved Financing Access: Insured receivables are seen as lower-risk by banks, leading to favorable loan terms.
- Competitive Credit Terms: Enables businesses to offer flexible payment options, attracting new customers.
- Market Intelligence: Insurers provide credit assessments, helping businesses evaluate customer reliability.
How It Works:
- Obtain a policy tailored to your needs (e.g., whole turnover, single buyer).
- Premiums are typically a small percentage of sales (e.g., 0.25% per dollar).
- File claims with required documentation if customers default.
A Sales Expansion Tool that Protects Your Business
Main Benefits of Credit Insurance for Market Expansion
Credit insurance plays a vital role in helping businesses grow confidently while safeguarding their financial stability. By addressing key risks, it enables companies to shift from cautious growth strategies to more assured market expansion. Here’s how it can make a difference:
Protection Against Non-Payment
One of the most immediate advantages of credit insurance is its ability to shield your business from the financial blow of unpaid invoices. When entering new markets, you’re often dealing with customers whose payment histories and financial reliability are uncertain. Credit insurance acts as a safety net, stepping in if a buyer defaults due to insolvency or non-payment.
This protection is particularly crucial when you consider that defaults or insolvencies contribute to about 25% of corporate bankruptcies. For businesses expanding internationally, export credit insurance offers an added layer of security by covering both commercial and political risks. Depending on the buyer and the goods involved, businesses can receive reimbursement rates as high as 90–100%.
"One of the key benefits of trade credit insurance is its ability to help companies expand into new markets without the fear of non-payment."
Beyond just protecting your revenue, credit insurance safeguards your profit margins and growth potential. This gives you the confidence to pursue opportunities that might otherwise seem too uncertain or risky.
Better Access to Financing
Credit insurance doesn’t just protect your receivables – it turns them into secure assets. This added security can significantly improve your access to financing. Banks are more likely to offer favorable lending terms to businesses that use trade credit insurance, as it demonstrates financial stability and reduces risk. Typically, banks may finance buyers up to a percentage of the insured value, making it easier to secure the capital needed for expansion.
For example, a U.K. manufacturer heavily reliant on a single customer faced challenges when their credit insurer initially reduced the credit limit. However, Aon helped them find an insurer offering non-cancellable limits, ensuring the credit limit remained stable throughout the policy period. This assurance allowed the company to secure a new receivables financing program at better terms than before.
"We’re seeing more and more people starting to use credit insurance to access better financing rather than as a risk mitigation tool only." – Gary Lorimer, Aon’s Growth Leader for Credit Solutions
This financing edge becomes especially valuable during periods of market expansion, where additional capital is often needed for inventory, marketing, or scaling operations. With credit insurance, your expansion plans can become assets that banks are willing to back. It also enables you to offer more attractive terms to potential customers, further supporting growth.
Offering Competitive Credit Terms
In competitive markets, offering attractive payment terms can be the key to winning new customers. Credit insurance allows you to extend longer credit periods or more flexible payment terms without exposing your business to unnecessary risk. This capability is a game-changer, especially in markets where competitors already offer favorable terms.
In 2021, Association of British Insurers members insured nearly $416 billion in turnover, facilitating countless trading partnerships.
"Trade credit insurance allows you to take on additional work safely and securely, whether it’s a new customer or expansion from existing customers." – David Edgell, Regional Commercial Manager at Allianz Trade
How Credit Insurance Works
Understanding how credit insurance operates can help businesses make smarter choices while protecting their efforts to grow in new markets. The process typically involves three main steps: getting a policy, understanding coverage and premiums, and effectively managing claims. Let’s break down how to navigate these steps for smooth credit insurance management.
Getting a Credit Insurance Policy
Start by comparing quotes from multiple providers. You can either reach out directly to insurers or work with a broker to find the best coverage for your needs. Once you’ve chosen an insurer, the next step is to request a credit limit before finalizing any deals with your customers. This is a crucial step to ensure your transactions are protected. During this process, the insurer will assess the creditworthiness of your potential customer and assign a specific credit limit. Alternatively, you can use self-assessment tools, such as credit reports and recent payment behavior, to determine the appropriate credit limit. Credit insurance policies are typically issued for one or two years.
Coverage and Premium Costs
Understanding how coverage and premiums are calculated is essential. Credit insurance premiums are usually a percentage of sales, averaging around 0.25 cents per dollar. For example, a business with $20 million in annual sales might pay under $50,000 in premiums. In some areas, like the Netherlands, costs can range between 0.1% and 0.5% of turnover.
Premiums are influenced by several factors, including your industry, annual revenue, past bad debt history, internal credit processes, and the creditworthiness of your customers. Geographic and political risks also play a role, particularly for businesses entering emerging or politically unstable markets.
Credit insurance is not a one-size-fits-all solution. Coverage can be customized to meet your specific needs, whether you want to protect your entire turnover, focus on key accounts, insure a single buyer, or cover specific transactions. Indemnity levels, which determine how much compensation you receive when filing a claim, typically range from 80% to 100% of the debt under policies like those from Allianz Trade.
Filing Claims and Managing Receivables
If a customer defaults or becomes insolvent, it’s important to act quickly and notify your insurer. For slow-pay defaults, claims should be submitted within 180 days, while insolvency notifications usually require filing within 10–20 days. When submitting a claim, include thorough documentation, such as purchase orders, sales contracts, invoices, aging reports, proof of delivery, and collection records. These documents help verify the debt and the circumstances of the default.
Once all required documents are submitted, the insurer will review the claim to confirm its validity and the default circumstances. Compensation is typically provided within a set timeframe. Keep in mind that insurers expect you to exhaust reasonable internal collection efforts before filing a claim.
"We know that Allianz Trade will stand behind us in the event of a loss", said Jeff Green, CFO at Johnstone Supply. "And I know from experience that that isn’t always the case with other insurers."
This process ensures your receivables are protected, allowing you to focus on growing your business while maintaining financial security.
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Case Studies: Credit Insurance in Action
Real-life stories show how businesses have used credit insurance to confidently grow in new markets while safeguarding their financial health. These examples highlight three key scenarios: entering emerging markets, handling significant orders from new customers, and addressing political and economic challenges.
Expanding into Emerging Markets
The International Finance Corporation (IFC) offers a compelling example of how credit insurance can drive growth in developing regions. In 2020, the IFC partnered with six insurers, including AXA XL, to launch an initiative that funneled up to $5 billion in financing through financial systems in the Asia-Pacific region. This effort helped lenders manage internal risks and meet regulatory requirements, unlocking an additional $2 billion in funding that would have been out of reach without credit insurance support.
Globally, the insurance gap is significant. Lloyd’s of London estimated this gap at $162.5 billion, with notable shortfalls of 1.4% of GDP in Indonesia, 1.3% in Nigeria, and 1% in India.
One manufacturer and distributor used credit insurance to transform its export operations. By adopting a comprehensive policy, the company extended credit terms to new customers, skyrocketing its export turnover from 10% to over 80%. Today, it exports to over 100 countries.
Another example comes from Oregon Berry Packing, which relied on credit insurance to confidently enter international markets. As Fasel, a company representative, explained:
"The Allianz Trade services provide a backstop. It gives us peace of mind, so we don’t have to worry. Without this tool, we probably wouldn’t export."
But credit insurance isn’t just about entering new markets – it also plays a crucial role in handling large orders from unfamiliar customers.
Managing Large Orders from New Customers
Wingate Electrical Plc, a UK-based company, introduced credit insurance in 2006/7 to protect itself against the potential failure of key clients. At the time, about 10 major customers made up a significant portion of its business. Over the next decade, the company successfully filed several claims, including one for £170,000 after a client went insolvent. That claim was processed within four weeks and paid within two months.
John Munro, Wingate Electrical’s Financial Director, emphasized the value of credit insurance:
"Credit insurance is part of our armoury to manage risk within the business. It’s not a silver bullet to debt management, but it’s an additional tool that can kick in when things go wrong."
Similarly, M. Lipsitz & Co., a metal recycling firm, uses trade credit insurance to navigate challenges like fluctuating commodity prices and political risks. Their partnership with Allianz Trade enables them to assess the creditworthiness of potential clients and extend credit to a broader customer base. CFO Nemec shared:
"Allianz Trade has allowed us to open some markets that we otherwise would not be involved in. Without Allianz Trade, if a customer did not have a rock-solid financial statement or was not publicly held, we would not be able to work with them."
International Fleet Sales also benefited from credit insurance by reducing concentration risk with large clients. This protection gave them the confidence to offer credit on bigger deals that would have otherwise seemed too risky.
Beyond managing orders, credit insurance proves invaluable in navigating the complexities of political and economic instability.
Dealing with Political and Economic Risks
Green Agricultural Products Company faced challenges like price volatility and competitors offering extended repayment terms. By adopting a Pay-As-You-Go Trade Credit Insurance Policy, the company could offer longer repayment terms, explore new markets, and secure better financing terms. With 95% indemnity coverage, they also saved costs by paying premiums based on actual shipments rather than projected sales.
A global energy company used a Non-Cancelable Limits Policy to mitigate non-payment risks from international customers. This policy allowed them to extend favorable credit terms, reduce bad debt, and confidently expand into high-risk markets while ensuring their receivables were protected.
The demand for credit and political risk insurance is particularly strong in volatile regions. Emerging markets in Asia, Africa, the Middle East, and Latin America account for 70–80% of this demand.
Benjamin Lambert, Head of Political and Credit Risk at Coface, highlighted the importance of expertise in managing these risks:
"As a world leader in trade credit insurance and risk management, our key asset is our ability to adjust our underwriting in line with the political and geopolitical risks we face. Thanks to our unique expertise and close collaboration with our clients, we can anticipate and effectively protect them against the country risks involved in their activities."
These stories clearly show that credit insurance is more than just a safety measure. It’s a strategic enabler, helping businesses seize opportunities that might otherwise seem too risky. Whether entering new markets, managing large orders, or navigating unpredictable political and economic conditions, credit insurance provides the confidence and protection needed for sustainable growth.
Choosing and Setting Up Credit Insurance
When expanding into new markets, credit insurance can play a vital role in managing risks. By carefully evaluating your risk profile, exploring coverage options, and aligning the policy with your growth plans, you can use credit insurance as a strategic tool to safeguard your business during market expansion.
What to Consider When Choosing a Policy
The type of credit insurance you need largely depends on your industry and the specific risks you face. For instance, a technology company venturing into emerging markets with higher chances of customer defaults may require different coverage than a manufacturer with a stable international client base.
Geographic location is another critical factor. If you’re expanding into regions with political instability or emerging economies, you’ll want a policy that addresses both commercial risks (like customer insolvency) and political risks (such as government actions disrupting trade).
Credit insurance policies come in several forms to suit various needs:
- Whole turnover policies: Cover all sales across your business.
- Partial turnover policies: Focus on specific segments of your operations.
- Single-buyer coverage: Protects against losses from one key customer.
- Top-up policies: Add extra coverage beyond standard limits.
Your choice should match your business’s specific needs, whether you require domestic protection, international coverage, or a combination of both.
"Trade credit insurance, with its full spectrum of solution offerings, can be integrated as a strategic tool to help you navigate the uncertainties of global trade while supporting your overarching business goals." – Marsh Asia
Steps to Set Up Credit Insurance
To get started, evaluate your current credit management practices. Work with an experienced risk advisor or a trade credit broker to identify and customize a policy that aligns with your expansion goals. Their expertise can help you navigate the complex options and choose the best fit for your business.
The underwriting process involves assessing the creditworthiness of your buyers. This step requires providing detailed information, such as customer profiles, sales history, and your expansion plans. Underwriters use this data to determine coverage limits and set premium rates.
Once you’ve selected a policy, tailor it to reflect your specific needs. Adjust limits, deductibles, and features to align with your risk profile. This customization ensures your receivables are protected while supporting your growth strategy.
Integration is the final step. Incorporate the policy into your existing credit management systems. Set up processes for handling credit limit requests, monitoring customer risks, and managing claims. A well-integrated system ensures smooth operations and maximizes the policy’s benefits.
Ongoing monitoring is essential. Keep an eye on customer risks and adjust your coverage as needed. Staying informed about global trade conditions, economic trends, and political developments can help you anticipate risks and make proactive adjustments to your policy.
Educational Resources from CreditInsurance.com
For businesses navigating the complexities of credit insurance, CreditInsurance.com offers a wealth of educational tools and resources. These materials are designed to help companies make informed decisions about protecting their receivables during market expansion.
The platform provides detailed guidance on mitigating risks like non-payment, customer insolvency, and political disruptions. Real-world examples and case studies demonstrate how businesses have successfully used credit insurance to support growth. Additionally, expert insights address common misconceptions and answer frequently asked questions to simplify the policy selection process.
To further assist businesses, CreditInsurance.com features tools such as calculators to estimate how credit insurance can enhance sales and expand credit lines. The site also includes a glossary of industry terms and pricing guidance, helping businesses evaluate their return on investment and determine the right coverage levels.
These resources equip companies with the knowledge and tools they need to confidently enter new markets and protect their financial interests.
Conclusion: Growing Your Business with Credit Insurance
Credit insurance provides businesses with the tools to turn potential risks into opportunities for growth. In 2023, the U.S. trade credit insurance market reached a valuation of $2.02 billion, with an expected annual growth rate of 10.6% through 2030. This growth reflects the increasing reliance on credit insurance as a vital business resource. As Gary Lorimer, Head of Business Development for Aon Credit Solutions, aptly states, "It’s known as credit insurance, but it’s more opportunity protection". This perspective highlights the strategic importance of credit insurance in driving business success.
Key Takeaways
Credit insurance offers tangible benefits that directly contribute to business expansion. By enabling companies to extend credit safely to new customers, it opens doors to both domestic and international markets while ensuring financial stability. Globally, trade credit insurance supports 2.4 trillion euros in insured exposure and now protects over 14.2% of businesses worldwide.
The advantages extend beyond risk management. Improved cash flow, better financing terms, and protection against defaults create a solid financial foundation for growth. For example, offering more flexible payment terms can strengthen customer relationships and encourage repeat business, setting the stage for larger deals and ambitious growth strategies. Real-world success stories illustrate these points: a multinational chemical supplier reduced default losses by 20% while expanding into emerging markets, and an agricultural exporter saw profit margin improvements thanks to favorable insurance premiums while diversifying in developing economies.
These benefits highlight how credit insurance can play a central role in supporting proactive, growth-oriented business strategies.
Next Steps for Businesses
Implementing credit insurance effectively requires a thoughtful, strategic approach tailored to your business goals. Start by evaluating your risk exposure, updating credit scoring with the latest market data, and diversifying your customer base. Segment risks carefully and negotiate terms with insurers that align with your business cycles. Digital tools can be invaluable for real-time credit evaluations, while staying informed about market trends and regulatory changes ensures your strategy remains relevant.
CreditInsurance.com provides a wealth of resources – including calculators, glossaries, and case studies – to help businesses navigate their options and identify the best coverage for their needs.
Incorporate credit insurance into your credit policies early. This not only signals to clients that you prioritize financial responsibility but also equips you with the tools to monitor and manage risks effectively. Claims should be a last resort, with insurer data serving as a guide for proactive risk management. Credit insurance can also serve as a launchpad for entering new markets where the rewards outweigh the risks.
With U.S. business bankruptcies projected to rise by 23.5% in 2025 compared to 2024, credit insurance provides a safety net against uncertainty. More importantly, it empowers businesses to seize opportunities with the confidence that comes from financial security. By embedding credit insurance into your growth strategy, you can position your business for long-term success.
FAQs
How can credit insurance help businesses reduce financial risks when expanding into international markets?
Credit insurance plays a crucial role in helping businesses manage financial risks when venturing into international markets. It provides protection against non-payment and political risks, ensuring that if a foreign customer fails to pay or unexpected political events disrupt trade, your invoices are covered. This safeguard helps maintain steady cash flow, even in unpredictable situations.
Another advantage of credit insurance is its ability to enhance access to financing. Banks and lenders are often more inclined to offer credit when your receivables are insured. This not only strengthens your financial position but also enables you to offer attractive payment terms to international customers, boosting sales opportunities. With this safety net in place, businesses can confidently step into new markets, reducing uncertainties and focusing on growth.
What should businesses consider when selecting a credit insurance policy for expanding into new markets?
When choosing a credit insurance policy to help expand into new markets, it’s crucial to weigh a few important factors:
- Coverage scope: Make sure the policy protects against risks like non-payment, customer insolvency, and political challenges in the markets you’re targeting.
- Cost and terms: Look closely at the premium, deductible, and policy conditions to ensure they fit within your budget and match your risk tolerance.
- Insurer reliability: Opt for a provider with a solid financial foundation, global expertise, and a history of successfully supporting businesses in various markets.
Taking the time to assess these elements can help you find a policy that reduces financial uncertainty and supports confident growth as you enter new territories.
How does credit insurance help businesses secure financing?
Credit insurance plays a crucial role in helping businesses secure financing by reducing the uncertainties tied to their accounts receivable. With credit insurance in place, a company’s receivables are safeguarded against risks like customer non-payment or insolvency. This added layer of protection makes receivables more dependable and appealing to lenders.
For lenders, insured accounts receivable are seen as lower-risk assets. This perception can translate into more favorable loan terms, higher credit limits, and smoother access to financing. The process works like this: businesses obtain credit insurance, during which insurers evaluate the creditworthiness of the company’s customers. Once the receivables are insured, businesses can confidently leverage them as collateral, supporting growth efforts and enabling expansion into new markets.
