Trade Credit Insurance (TCI) is becoming increasingly vital for the growth of small and medium-sized enterprises (SMEs), offering protection against the risk of non-payment on trade receivables, according to a new whitepaper released by the International Credit Insurance & Surety Association (ICISA).
The report highlights that businesses of all sizes, from SMEs to multinational corporations, utilize TCI to safeguard both domestic and international transactions. These transactions, typically on short-term invoice terms of up to 90 days, are covered by TCI policies that are often purchased on a whole-turnover basis.
TCI not only protects companies from the risk of buyer insolvency but also covers political risks such as war, public contract disruptions, and currency restrictions. By shifting the risk of default to a highly rated insurer, TCI strengthens the creditworthiness of businesses, making it easier for them to secure financing from banks and other financial institutions.
In its whitepaper, ICISA has outlined six key recommendations for policymakers and regulators to increase the effectiveness of TCI. These include raising awareness about the benefits of TCI, promoting trade digitalisation, encouraging robust financial risk management practices among SMEs, maintaining clear insolvency laws and court systems, creating legal identifier systems for companies, and enhancing regulatory frameworks for TCI.
These recommendations aim to expand the reach and impact of TCI, helping SMEs access better financial resources and mitigate the risks associated with trade transactions.
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