How Trade Credit Insurance Costs Are Calculated

Allianz Trade has outlined how the costs for trade credit insurance are determined for businesses. Premiums are customized for each company, taking into account factors such as the industry sector, annual revenue, and the business's financial history.

The cost of a trade credit insurance policy is generally calculated as a percentage of the insured sales, often amounting to less than one percent. For instance, a policy covering £4 million in sales might typically cost under £13,500. Additional factors influencing the premium include the company's internal credit procedures, the creditworthiness of its customers, geographical locations of business operations, and any need for political risk cover for exports.

While a company's financial history, including past defaults on receivables, is considered, a poor history does not automatically equate to a higher premium. Other elements, such as the market outlook for the industry and future demand for products, can outweigh past performance in the premium calculation.

Investing in trade credit insurance can be beneficial for protecting a business's cash flow and working capital. The policies can facilitate offering more credit to existing customers or pursuing larger, new clients that might otherwise be deemed too risky. This can lead to increased sales and profits without substantially increasing risk exposure. Allianz Trade provides tailored policies and offers consultations to determine specific costs for businesses.