When it comes to growing and expanding your business, working capital is a key factor in that journey. Whether it be supplier finance or receivables finance, banks are offering an array of solutions to cater for the needs of growth-focused companies.

Looking to enhance their offering, banks involved in trade finance are establishing partnerships with trade credit insurance companies such as Allianz Trade, Atradius and Coface to enable the acceptance of higher-risk obligors on a receivables finance programme.

A possible game-changer in the industry, trade credit insurance can compensate a major portion of the credit to the receivable undertaker, as much as 90% of the payment, according to Atradius.

Overall global supply chains are expecting additional trade credit insurance deals. In 2022, the trade credit insurance market covered €3.2 trillion (US$3.47 trillion) in losses, up 20% from the previous year, and repaid claims valued at €2.5 billion (US$2.71 billion), a 66% increase from 2021, data from fintech solution provider Trade Finance Global show.

“When doing business with companies with credit insurance coverage, banks can be more comfortable lending against those clients’ accounts receivables,” says Allianz Trade, an international insurance provider covering trade credit insurance. “This, in turn, creates more opportunities for banks to lend more money to more clients while still managing their own risks effectively.”

Insured receivables not only alleviate the concerns of banks, but also cement their relationships with clients who are looking to reduce their days sales outstanding and allow programmes to be upsized since risk concerns are mitigated.

“Trade credit insurers also work to remain up to date on your customers’ financial health by monitoring financial statements and often information not in the public domain, such as business plans, projections and management accounts, as well as wider industry data from other companies supplying the same customers,” notes Willis Towers Watson, a risk management and consultant company.

While useful, the coverage of trade credit insurance is subject to the cost, which can increase if the receivable is too risky to bear. Swiss Re expects the insurance premium to scale up to US$14.8 billion in 2024 amid the elevated default risk in an economic slowdown. It is also worth noting that coverage seldom reaches 100% and trade credit insurers can terminate the deal if the balance of the payment is in dispute.