Credit risk is nothing but the possibility of a loss when the other party fails to follow the terms and conditions of their financial contract. In simple words, this occurs when a borrower or client fails to make the payment. You can reduce the credit risk using the below strategies.
- Credit Insurance
- Cash On Delivery
You should follow some good credit management strategies to minimize the credit risk. This strategy involves in reminding customers to make the payment. When it comes to the insurance, it is the trade credit insurance (TCI), which a businessman should choose. The advantage of choosing trade credit insurance is that they protect your company from debt.
This TCI can protect businesses from unpaid invoices, which are caused due to political risks, customer bankruptcy and other reasons that are listed in the insurance. This type of insurance is also known as export credit insurance or debtor insurance. One of the top trade credit insurance companies in Australia is Niche Trade Credit. You can stay with confidence by choosing this trade credit insurance.
How does this TCI work?
Even though you are extremely careful, you might come across some customers who may fail to make your payment sometimes. This insurance will cover the unpaid invoice, when your customers don’t make the payment. This type of insurance can be chosen by businesses of any size to protect domestic and international trade. TCI gives you a chance to explore new market.
Tips for credit risk management
- Check the credit rating of your customers. Make sure that your contract includes all the important details, as this will help you avoid confusion later.
- It is extremely important to build strong relationship with your customers for managing credit risk. Even though it might take some good amount of time to build strong customer relationship, you will definitely see results in the long run.
- A sales agreement should include all the credit terms. This helps you by reducing the dispute with your customers. This will increase the chance for getting paid in full.
- It is important to monitor your customers regularly. Terminate trading relationship with them if you feel that they don’t meet your conditions.
Credit insurance Policy
- Step One: Agree the credit terms with your insurer and customers.
- Step Two: You need not have to make any changes in your business by choosing the TCI. You can simply operate your business as usual. Some insurers provide you suggestions, which helps you in developing your business, while some don’t provide any support.
- Step Three: If you are not paid by your customers or clients then inform your insurer about it. What most of the insurers do is, they try to recover debt first. Some customers look for additional time to make the payment. Your insurers will approach your customers and discuss with them about the payment. If they feel that it is impossible to recover the debt, then your insurer will pay you around 80% to 90% of the amount.
Choose the TCI to run your business smoothly!