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Global Risk Management
Published in Thomas A. Cook, Enterprise Risk Management in the Global Supply Chain, 2017
Receivable exposures only exist with export sales activity. Also referred to as trade credit insurance, business credit insurance, export credit insurance, or credit insurance, it is an insurance policy and a risk management product offered by private insurance companies and governmental export credit agencies to business entities wishing to protect their accounts receivables from loss due to credit risks such as protracted default, insolvency, or bankruptcy.
Trade credit insurance: insuring strategy of the retailer and the manufacturer
Published in International Journal of Production Research, 2022
Hongping Li, Gongbing Bi, Wen Song, Xiaoyong Yuan
Trade credit insurance provides credit guarantee for delayed payment between the manufacturer and the retailer. When the debtor is unable to honour its obligations, the insurer is liable for compensation for the creditor's financial losses (Li, Zhen, and Cai 2016). As one of the most effective risk management tools, trade credit insurance is widely applied in the process of financing. Specifically, to minimise the risk of the creditor's capital losses, the debtor is generally required to buy trade credit insurance to guarantee repayment (Li, Zhen, and Cai 2016). However, the creditor occasionally purchases trade credit insurance to alleviate the debtor's capital burden to achieve higher product sales and more profit (Li et al. 2020). The purchase of trade credit insurance by both sides of financing promotes its wide adoption in commercial trade. According to the practical statistics from the International Credit Insurance and Surety Association in 2019, the global credit insurance premium income reached 6.9 billion euros, the compensation amount was 2.8 billion euros, and the global credit insurance pay-out rate was 43%. 2 However, the utilisation of trade credit insurance brings an important challenge to the debtor (retailer) and the creditor (manufacturer) – trade credit insurance should be purchased by the retailer or the manufacturer or both (i.e. the insuring strategy of the retailer and the manufacturer).