Trade credit insurance and risk management: Case studyCoface insures the receivables of a SME in New Zealand that produces electronic components. This company was recently on the verge of signing a contract stipulating 150-day credit terms with a major manufacturer of electric appliances. However, Coface's research revealed that the manufacturer had sustained significant financial losses in recent years, and we advised our client of the serious trade credit risk associated with this organisation. As a result, the SME in New Zealand declined the opportunity and the manufacturer later filed for bankruptcy after failing to pay a competing electronic components business. This case study underlines how effective risk management doesn't just involve the right TCI policy, but also working with a trade credit insurance company like Coface that is able to properly assess the risk level of potential trading partners.
Of course, it isn't always possible to accurately predict the risk of every buyer, which is where a trade credit policy appropriate to your business comes in handy.
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