In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale. The account receivable is similar to a loan and represents capital invested, and often borrowed, by the vendor. But this is not a secure asset until it is paid. If the customer's debt is credit insured the large risky asset becomes more secure. This asset may then be viewed as collateral by lending institutions. Credit extended against this collateral can thus be used to fund the expenses of the transaction and to produce more goods. Credit Insurance is, therefore, a trade finance tool.

Although Credit Insurance is often associated with protecting foreign or export transactions there has always been a large segment of the market that uses this receivables management product for domestic markets. Credit insurance will cover a business' entire turnover wherever it may be trading and will include political risks. However Credit Insurance can also cover a business' key accounts or exceptional losses. As companies consolidate their customer base, creating larger receivables from fewer customers, the risk should one of those customers default is substantial. Credit Insurance is one way to minimise your business' exposure.

Nigel Kerr, Senior Risk Analyst at Euler Hermes UK explains: "On average, companies are estimated to have 40% of their current assets in the form of trade debtors, and research has shown consistently that companies are unable to predict the vast majority of failures to which they are exposed. Indeed it is estimated that up to 50% of all failures concern customers that were previously considered to be both long standing and prompt paying. It is a sobering thought that even the customer you thought you knew best of all could inadvertently end up being your downfall."

As well as the security that credit insurance provides, Nigel also stresses a number of positive advantages in supporting business growth: "A positive aspect of credit insurance is that it assists you with targeting your sales effort, focusing on profitable buyers and markets, and avoiding financially weak customers or politically unstable export territories," he says. "It also positively impacts on your balance sheet by reducing a company's bad debt provision, thereby releasing tied-up capital that can be invested elsewhere."

So whether you are looking to expand business opportunities overseas, but are unsure of your trade partner or economic conditions of the country, or whether you are consolidating your client base and are concerned that too many eggs are in too few baskets, credit insurance could be the perfect way to maintain profitable growth without losing sleep at night!