Why Adopting Trade Credit Technology Is Worth It

For many businesses, trade credit is the lifeblood of growth. Yet in 2025, too many finance teams are still managing credit applications, onboarding, and debtor books with spreadsheets, manual checks, and fragmented systems. The result is slow approvals, poor visibility into customer health, and increased exposure to bad debt. 

At Trade Shield, we see first-hand that adopting technology to streamline trade credit management isn’t just a “nice-to-have.” It’s the difference between reactive firefighting and proactive growth. But adoption can be challenging.  

Let’s explore the barriers we hear most often and why overcoming them pays off. 

 

Barrier 1: “It’s Too Costly to Implement” 

The reality:

Cost and risk are top concerns for CFOs and credit managers, especially in 2025’s high-interest, margin-squeezed environment. Tech adoption feels risky when budgets are tight. 

 

Why it’s worth overcoming:

Manual processes are expensive in hidden ways with delayed sales because credit takes days to approve, there are higher staff costs, and there could be write-offs from weak credit checks. Research shows SMEs lose up to 5% of revenue annually to fraud and credit risk when relying on outdated methods (PwC Global Economic Crime Survey, 2024). With Trade Shield, approvals take minutes, not days, and defaults are reduced through predictive analytics, meaning the ROI is measurable and near-term. 

 

Barrier 2: “My Team Isn’t Tech-Savvy Enough” 

The reality:

Credit teams have expertise in finance, not necessarily in software. Fear of “breaking the system” or adding workload creates resistance. 

Why it’s worth overcoming:

Adoption doesn’t have to mean complexity. Trade Shield improves your credit process by  automating repetitive checks, and providing intuitive dashboards. More importantly, we invest in onboarding and ongoing support, helping teams build confidence. Studies show employees who feel supported in using new tools are 3x more likely to adopt them effectively (Deloitte Human Capital Trends, 2025). That’s where Trade Shield creates a seamless journey for our customers, managing the change for credit teams and processes.  

 

Barrier 3: “We’ve Always Done It This Way” 

The reality:

Many businesses have survived for decades managing debtor books manually. Change feels unnecessary, until defaults spike or growth stalls. 

Why it’s worth overcoming:

Markets in 2025 are faster, riskier, and more competitive. Manual credit control simply can’t keep pace with customer demands or regulatory requirements. In South Africa, average business insolvencies rose by 9% in 2024 (Stats SA), with poor credit visibility cited as a key contributor. Companies that adopt real-time monitoring are better positioned to identify risks before they become losses, and to spot growth opportunities among reliable payers. 

 

Barrier 4: “Onboarding and adoption will be a nightmare” 

The reality:

Legacy systems, siloed data, and fragmented processes make leaders worry about disruption during rollout. 

Why it’s worth overcoming:

Modern credit management tools are designed for interoperability. Trade Shield connects seamlessly with major accounting platforms, ERPs, and external data sources such credit bureaus. A phased implementation and onboarding process allows our customers s to  use Trade Shield as a tool for their credit processes efficiently and effectively.  

 

Barrier 5: “The Economy Is Too Uncertain Right Now” 

The reality:

In volatile times, many companies default to defensive strategies and cutting investment in new systems. 

Why it’s worth overcoming: 

Uncertainty is exactly why proactive credit management matters most. In downturns, the cost of defaults rises. Having predictive analytics and early-warning alerts helps businesses act before risk crystallises. In growth cycles, the same tools speed up onboarding of good clients and fuels expansion. Either way, technology turns credit management from a defensive back-office function into a growth engine. 

 

Turning Barriers into Growth 

Understanding these barriers can result in a clear strategy for improving credit processes.  Businesses that fail to modernise credit management face: 

  • Higher bad debt write-offs 
  • Slower sales cycles 
  • Missed opportunities with strong customers 
  • Regulatory and reputational risk 

By contrast, businesses that adopt solutions such as Trade Shield see: 

  • Credit approvals in minutes, not days 
  • Real-time visibility across their debtor book 
  • Reduced defaults through predictive analytics 
  • Stronger client relationships built on speed and trust 

 

Final Word 

Technology adoption isn’t about replacing people; it’s about empowering them. Trade Shield helps credit and finance teams work smarter, not harder. By removing friction, reducing risk, and unlocking growth, credit teams are empowered to manage their debtors books with ease 

In 2025, the question isn’t “Can we afford to adopt trade credit technology?”  

The real question is: “Can we afford not to?” 

The 7 Cs Reinvented for the Future of Credit

Trade credit is the engine that keeps commerce moving. It enables customers to purchase more, strengthens supplier–client relationships, and supports business growth. But extending credit is never risk-free. Defaults, fraud, and economic volatility can quickly turn credit from an enabler into a liability.

That’s why credit professionals continue to rely on the 7 C’s of Credit:

This framework remains vital in 2025, but each element now requires a modern lens.

At Trade Shield, we help finance leaders apply these principles with real-time data, predictive analytics, and streamlined onboarding.

At Trade Shield, understanding the 7 C’s of Credit is central to helping businesses make confident, risk-aware decisions in today’s dynamic environment. These principles guide our credit intelligence solutions, blending automation, analytics, and human judgment to assess customer risk with precision.

Capital reflects the financial cushion a business holds—its equity, liquidity, and reserves. In a climate of elevated interest rates and unpredictable operating costs, businesses with weak capital structures are more exposed to cash flow shocks. Trade Shield’s automated financial statement analysis and liquidity stress testing tools help identify whether a customer has the resilience to weather short-term disruptions.

Capacity refers to a customer’s ability to repay, based on profitability, cash flow, and debt levels. With global supply chains under pressure and margins tightening, even previously profitable businesses may now be struggling. Trade Shield’s real-time financial data integrations and predictive analytics provide forward-looking visibility into repayment ability, beyond static historical snapshots.

Character captures the reliability and integrity of a business—especially under stress. As fraud risks rise, ethical behaviour and trustworthiness are as vital as financial metrics. Trade Shield enhances credit assessments with supplier references, communication pattern analysis, and reputation checks, adding qualitative depth to the numbers.

Collateral serves as a safety net, especially for larger exposures. With insolvency rates climbing, having clear, updated valuations and legal documentation is essential. Trade Shield’s collateral management systems log, monitor, and validate pledged assets, reducing uncertainty and dispute risk.

Condition considers the external environment—industry cycles, regulatory shifts, and macroeconomic trends. Factors like currency volatility and compliance requirements (e.g., POPIA) can significantly influence repayment risk. Trade Shield’s scenario modelling and industry benchmarking tools help businesses anticipate how external conditions may impact their customers.

Credit History remains one of the strongest predictors of future behaviour. With demand for credit rising—particularly among below-prime borrowers—having a complete view of past repayment patterns is critical. Trade Shield aggregates bureau data, trade references, and alternative sources like utility payments to build a fuller picture, especially for SMEs with limited banking histories.

Finally, Common Sense—human judgment—remains irreplaceable. Algorithms can’t detect every red flag. Sudden behavioural shifts, unrealistic promises, or market rumours often signal trouble before the data does. Trade Shield empowers teams with tools that support qualitative assessments, including client conversations, site visits, and trust in experienced instincts.


Why the 7 C’s Still Matter

Recent global research reinforces the value of this framework. The Basel Committee’s 2025 Principles for the Management of Credit Risk emphasises the need for both quantitative and qualitative assessment in credit decisions. The US OCC’s Semiannual Risk Perspective 2025 highlights rising commercial credit risk linked to macroeconomic uncertainty and fraud. Meanwhile, academic studies show the 5 C’s model still strongly correlates with repayment outcomes, with “Character” and “Conditions” growing in importance.

For trade credit professionals, the 7 C’s provide a holistic view. Financial data may highlight capital and capacity, but qualitative factors like character, history, and common sense often explain defaults that numbers alone missed.


Trade Shield’s Approach

At Trade Shield, we embed the 7 C’s into our technology:

  • Digital onboarding captures capital, capacity, and credit history instantly from multiple data sources.
  • Real-time monitoring tracks changing conditions, debtor behaviour, and repayment patterns.
  • Risk dashboards highlight red flags in character, history, and collateral.
  • Predictive analytics stress-test customer resilience under different market scenarios.
  • User-friendly design empowers credit teams to apply both analytics and common sense.

By combining classical credit principles with modern tools, we help businesses reduce defaults, approve credit faster, and manage debtor books with confidence.

Final Thought
The 7 C’s of Credit are not just a checklist, they’re a strategic framework. In 2025, mastering them means blending financial metrics with human judgment, predictive tools with experience, and automation with compliance.

Businesses that get this right don’t just protect themselves from bad debt. They enable growth, strengthen customer trust, and build resilience in uncertain markets.

At Trade Shield, we help clients turn the 7 C’s from theory into practice, transforming trade credit into a competitive advantage.

How Trade Credit Has Changed—and Why It Must Keep Changing

For most businesses, trade credit is not just a payment option, it’s the foundation of growth. Extending credit allows customers to buy more, build loyalty, and expand markets. But in 2025, managing trade credit has never been more challenging.

Longer collection times, higher fraud risks, and tougher regulatory scrutiny are making it harder for credit teams to keep debtor books healthy. At the same time, customers expect faster approvals and seamless onboarding. There is a widening gap between traditional, manual credit practices and the demands of today’s business environment.

At Trade Shield, we believe this gap is where technology can make the difference. But adoption is not automatic. Let’s unpack the challenges facing credit teams and why overcoming them is worth it.

The Pressure on Trade Credit Teams

Recent research paints a sobering picture:

  • Collections are taking longer.
    In South Africa, business insolvencies rose by 9% in 2024 (Stats SA), highlighting growing strain on payment cycles.
  • Fraud is a rising threat.
    The Alloy State of Fraud Report 2025 found that 60% of financial institutions and FinTechs reported higher fraud rates in the past year, a risk credit teams cannot ignore.
  • Demand for credit is climbing.
    TransUnion’s Q1 2025 report shows a 30% increase in new credit originations year-on-year, much of it from below-prime borrowers, signalling higher demand, but also higher risk.
  • SMEs are resource-constrained.

A 2025 survey of 10,000 South African SMEs found that limited financial skills and weak business networks are major internal barriers to effective credit management (South African Journal of Economic and Management Sciences, 2025).

Together, these factors mean that credit managers are expected to do more, with less, and faster than ever before.

Challenges to Trade Credit Modernisation

Many finance teams remain cautious about adopting new trade credit approaches, despite mounting pressures to modernise. Common challenges include slow, manual onboarding processes, reactive debtor management, and limited staffing that leaves credit functions stretched thin. Concerns about system integration, upfront costs, and technical skills gaps also contribute to resistance. While these challenges are real, they are not insurmountable, and overcoming them is key to unlocking more efficient, proactive, and scalable credit operations.

Why Trade Credit Modernisation Is Worth It

Businesses that cling to manual systems face mounting risks, including higher bad debt due to missed early warning signs, slower sales cycles caused by delayed approvals, and cash flow strain from late collections and defaults. In today’s economic climate, these issues can quickly escalate, threatening liquidity and competitiveness. Moreover, outdated systems often fall short of process improvement and efficiency.

On the other hand, companies that embrace trade credit technology unlock significant advantages.

  • Digital onboarding and integrated bureau checks enable credit approvals in minutes rather than days.
  • Predictive analytics and real-time monitoring help identify at-risk accounts before they default.

This proactive approach not only protects revenue but also enhances customer experience. It enables faster decisions and smoother onboarding, trust, loyalty and drives repeat business. Operational efficiency also improves, as automation frees up credit teams from repetitive admin, allowing them to focus on strategic initiatives.

At Trade Shield, we define best-in-class credit management by five core principles.

  1. Digital onboarding streamlines approvals through automated scoring and fraud-resistant trade reference checks.
  2. Predictive debtor monitoring provides real-time insights into account health and cash flow impact.
  3. Seamless integration ensures credit tools work effortlessly with ERPs, CRMs, and accounting platforms, eliminating duplication and data silos.
  4. User empowerment through training and intuitive dashboards boosts adoption and confidence across teams.
  5. Compliance is built into every process and safeguards both business and customer data.
  6. Automated audit trails strengthen compliance and streamline workflows free up talent to focus on growth and strategy. In short, modernising trade credit isn’t just about efficiency — it’s about resilience, agility, and unlocking new opportunities in a rapidly evolving market.
Building the Case for Change

When CFOs and credit leaders champion modernisation, the business case becomes clear and compelling. Predictive analytics and continuous monitoring can reduce write-offs by up to 30% (Deloitte, 2025), while faster approvals accelerate sales and shorten onboarding cycles.

Automated audit trails strengthen compliance and streamline workflows free up talent to focus on growth and strategy. In short, modernising trade credit isn’t just about efficiency — it’s about resilience, agility, and unlocking new opportunities in a rapidly evolving market.

The Trade Shield Perspective

Trade credit isn’t just about protecting against loss. It’s about enabling growth with confidence. In 2025, the real risk isn’t adopting new technology, it’s standing still.

Trade Shield exists to help businesses overcome barriers, transform onboarding, and gain real-time control over their debtor books. The result: faster approvals, lower defaults, and healthier cash flow.

The CFO’s Credit Compass: Navigating DSO for Smarter Cash Flow

Turn Days Sales Outstanding (DSO) from a hidden liability into a lever for smarter cash flow and sustainable growth.

 

Why This Whitepaper Matters

In South Africa’s uncertain economic climate, every day of delayed payment eats into liquidity, increases borrowing costs, and squeezes margins. For CFOs, understanding and managing DSO is no longer optional.

This whitepaper, written in collaboration with Martin Petzer, Trade Shield’s Credit Executive with 40+ years of experience in credit risk analytics, gives CFOs a practical framework to take control of DSO.

What You’ll Learn
  • Decode DSO – what it really means for cash flow, liquidity, and profitability.
  • Spot early warning signs of payment risk and default before they erode margins
  • Align terms with margins so you don’t lose profit while waiting to get paid
  • Streamline your invoice-to-cash process to reduce bottlenecks and accelerate collections
  • Use predictive analytics to proactively manage DSO and protect working capital.
Why Download?
  • CFO-focused insights: Practical, not academic.
  • South African market context: Tailored to late payments and thin margins.
  • Proven expertise: Backed by decades of credit strategy experience.
  • Actionable strategies: Tools you can apply immediately.
About Trade Shield

Trade Shield helps South African B2B businesses shorten DSO, reduce bad-debt risk, and unlock cash flow with real-time credit-risk insights.

Don’t let DSO choke your cash flow. Get the strategies South Africa’s top CFOs use to improve collections, reduce risk, and build resilience. Download it here.

White Paper: How Credit Risk Management Advances can Prepare Business for the Future

The challenge of balancing sales growth and risk exposure in credit management is an ongoing concern for Chief Financial Officers (CFOs). With the ever-present demand to increase revenues and profitability, the decision to extend credit to customers can be both an opportunity and a risk. This white paper will delve into the CFO’s perspective on driving sales growth through credit extension and explore how advances in credit risk assessment are affecting credit granting strategies.

This white paper covers the following topics:

  • The CFO and Credit Team’s challenge to balance sales and risk
  • The limitations of traditional credit assessment practices
  • Credit policies protect credit and limit growth
  • Discussion around the twin transformation needed
  • How technology has disrupted credit risk assessment

This whitepaper is intended for the following audience:

CFOs and Financial Directors of companies.
Credit Executives and Credit Managers looking to transform themselves into tech savvy leaders

Trade Credit Management – A Growth-Led Approach

Do you ever think about the growth opportunities that could be hidden in your trade credit accounts?

Managing trade credit accounts is very demanding. Whether it’s applications, payments or general queries, it can be difficult to understand what’s going on in 90% of your list where risk profiles are changing continuously!

In today’s competitive business landscape, leveraging predictive insights for revenue growth through effective credit management is becoming increasingly vital. Traditional methods, reliant on manual account analysis and often constrained by limited data, are proving inadequate for identifying and capitalising on growth opportunities.

Conversely, the shift towards smarter, data-driven methods promises a more strategic approach to credit management. A noteworthy statistic underpinning this shift is that 70% of businesses globally recognise the crucial role digital transformation plays in operational success and competitive advantage*. Utilising solutions that offer always-on analysis and predictive insights into accounts enables businesses to spot and act on opportunities for extending credit, thus driving revenue growth.

Imagine receiving real-time notifications of growth opportunities in your client list?

Why Traditional Methods Don’t Promote Growth

Growing your business and boosting profitability while using traditional trade credit management methods is challenging for the following reasons:

1. Data is limited

Traditional methods often rely solely on historical financial data from bureau credit reports, overlooking real-time data and broader market insights. This provides an incomplete view of a customer’s financial health.

2. It’s time consuming

Manual analyses and paper-based processes are inherently time-consuming. This can slow down the extension of credit to potential growth opportunities.

3. The risk of subjectivity

Decisions can often be based on manual assessments that are influenced by bias or experience. This subjectivity can lead to inconsistent decision-making.

 

Growth-led Approaches

Finance professionals at leading businesses are adopting a growth-led approach to managing trade credit. Rather than maintenance, reactive activity or continuously engaging a trade credit insurer, the trade credit teams’ focus is on growing revenue and profitability. There’s a shift to proactively pursuing opportunities. In order to achieve this they need a transformative toolset and some fresh capabilities. Here’s how they achieve it:

1. Enhanced data analysis

Modern platforms leverage big data and analytics to provide a comprehensive view of a customer’s financial health, market trends, and payment behaviour. This allows for more informed credit decisions, and the potential to increase revenue by targeting the right customers with the right terms.

2. Predictive insights for revenue growth

Big data combined with predictive modelling allow finance professionals to analyse the rich data collected, forecast customer payment behaviour, and identify potential revenue opportunities. This advanced analysis allows businesses to proactively extend credit to customers who are predicted to have a positive financial outlook.

3. Customised limit recommendations and decisioning framework

Modern credit management systems offer a decision framework that delivers data-informed credit ratings and tailored credit limit suggestions by analysing customer data and market trends. This helps credit teams balance trade credit risk with long term opportunity efficiently, enhancing decision-making and supporting business growth.

4. Always-on account monitoring and reporting

Continuous monitoring of credit accounts and real-time reporting capabilities allow businesses to quickly identify and respond to opportunities for further sales or adjustments in credit policies.

5. Automation creates capacity for opportunity spotting

Automation of credit processes reduces the time from application to decision, and strengthens the customer relationship. This creates more opportunity, enabling businesses to give more focus to growth-focused activities, opportunities and customer needs.

Case Study
Business Need

This leading FMCG business, with a turnover of almost $1 billion, produces and exports a range of loved brands. Facing a saturated local market, the company identified the need for growth within its existing customer base to achieve revenue targets.

Solution & result

Trade Shield provided continuous predictive limit reviews on over 4,000 credit customers. This enabled a 58% increase in average purchase volumes per customer, while delinquent debt and DSOs were maintained within acceptable ranges. Additionally, there was a 3% increase in active buyers. The result has been a significant boost in business profitability.

More case studies with real results? Download our free Case Studies eBook here.

In the journey towards revolutionising the trade credit management process, Trade Shield emerges as the solution of choice for businesses seeking to harness the power of digital transformation. By integrating the benefits of enhanced data analysis, predictive modelling, automated decision-making, and tailored credit limit recommendations, Trade Shield offers a comprehensive framework for growth-oriented credit risk management. Its ability to provide real-time insights, coupled with a sophisticated decision framework, empowers credit teams to make informed decisions swiftly, balancing risk and opportunity in a way that drives revenue growth. Trade Shield stands out as not just a tool but a strategic partner in navigating the complexities of modern approaches, making it an invaluable asset for businesses looking to capitalise on their growth potential while maintaining operational efficiency and customer satisfaction.

Take the next step

The journey from paper-based systems to a dynamic digital platform is transformative, easily highlighting the inefficiencies of manual processes and the compelling advantages of digitisation. If you’re a finance or credit professional with growth targets in any of the above benefit areas, we’d love to chat about how to streamline your operations and propel your business towards a more agile and data-driven future.

Book a no-obligation demo here, or contact us here. One of our friendly credit experts will be in touch.

Pros & Cons of Different Trade Credit Solutions | eBook

Whether your business uses Business Information Reports (BIRs), Scorecards or Credit Insurance, credit risk assessment methods all have pros and cons, and are suited to particular businesses. This document details benefits and shortfalls of all popular approaches.

You’ll learn:

  • The pros and cons of Business Information Reports, and whether they are suited to your business
  • The pros and cons of Scorecards, and whether they are suited to your business
  • The pros and cons of Credit Insurance, and whether it’s suited to your business
  • How Trade Shield can help

Digitisation in Trade Credit Management

Is your trade credit team drowning in paper?

Digitisation in trade credit management represents a broader trend in the market, driven by the increasing need for efficiency, accuracy, and agility in day-to-day operations. In fact, a recent study* has shown that 92% of SMEs acknowledge the critical importance of digital transformation. Such a high percentage points towards a strong market trend driven by the need for streamlined processes, reduced operational costs, and significant steps away from manual processes.

Companies offering trade credit are transforming too, recognising the value of real-time data processing, enhanced risk assessment capabilities, and the ability to adapt quickly when conditions change. Additionally, end-customers are happier because processes are faster and more user-friendly. As a result, more businesses are digitising trade credit reports, not only to stay competitive, but also to be able to make more informed and efficient credit decisions.

Many global trade credit teams are still using traditional methods with the following manual steps:

  • Potential buyers submit credit applications on paper
  • The credit team purchases credit bureau reports to provide detailed information about the applicant
  • The business uses an internal scorecard to assess credit risk
  • The credit team then uses all the inputs to make a subjective judgment and decides whether to grant credit or not, and on what terms.

 

The Trouble with Traditional Trade Credit Approaches

For businesses trying to manage their cash flows and ensure end-to-end visibility, traditional approaches present real challenges.

1. It’s time-consuming

The paper-based manual processes associated with credit reports can be time-consuming, keeping analysts from other important growth-focused functions like identifying opportunities and risks.

2. Data sources are limited

Traditional trade finance processes rely on credit bureau data, which may not be completely up-to-date or capture the complete financial picture of an applicant.

3. Subjectivity in decision-making

Decision-making is impacted by the data available and can be influenced by human bias or limited by the credit team’s experience and expertise.

4. Inflexibility

Responding to market changes or updating credit policies can be slow, impacting business agility and the ability to manage nuanced scenarios.

5. Higher operational costs

Manual processes require significant manpower and resources.

 
Why Leading Businesses are Digitising

Business leaders who are choosing control and visibility of the end-to-end process are experiencing some real benefits.

1. Unlock real efficiencies

Online applications and automated processes streamline the workflow, significantly reducing the time to process credit applications. See the case study below.

2. Richer data leads to deeper insights

Digital platforms can integrate diverse, real-time data sources, including data from internal sources (e.g. aging receivables), external sources (e.g. credit reports, financials, judgements, registrars, bank statements, trade payment data) and other sources (e.g. credit applications, references).

3. Better decision-making

Other than the richness of real-time data, advanced algorithms and machine learning can minimise human bias, making credit decisions more consistent and reliable.

4. Growth-focus

The reduction of time spent on applications and the availability of richer data allow analysts to focus on identifying opportunities and risks, thereby growing the business. Leading trade finance platforms surface these accounts based on continuous account monitoring, helping analysts to make growth-focused decisions.

5. Business-specific scalability & flexibility

Digital solutions can easily adapt to changes in credit policies or market conditions and can handle a larger volume of applications without a proportional increase in resources.

6. Less paper, reduced costs

Automation reduces the need for extensive manpower and paper-based processes, leading to cost savings. There’s no longer a need for cabinets of customer files. Every account and their full history are available digitally.

7. Better customer experiences

Faster credit decisions and a streamlined application process improve the customer experience, potentially increasing business opportunities.

8. Transformation

Digital trade credit management supports your company’s digital transformation efforts.

Many trade credit teams are still drowning in paper and working inefficiently. Whether it’s applications, bureau reports, or supplementary documentation for decision-making, it can all be a lot! Finance professionals who have growth targets linked to some of the above areas are choosing digitisation that ensures control, visibility and efficiency.

Trade Shield is a leader in digital trade credit management, always-on account monitoring and payment behaviour forecasting. Trade Shield has extensive experience in helping credit teams across industries, and at multinational brands like DHL, Heineken, Bridgestone, Avis, and NTT. Clients have enjoyed reductions in approval times and increases in sales and purchase volumes.

Case Study
Improving Onboarding Speed Through Digitisation & Automation
This international automotive manufacturer approached Trade Shield for assistance with digitisation and automation of their credit process. The multinational company operates supply chains across all continents and employs over 10,000 people. The business identified that improving the speed of onboarding new credit customers would improve sales and grow their customer base. Trade Shield’s end-to-end credit application and decisioning platform was selected to address these ongoing challenges and ensure business growth. By automating and digitising the credit review process, the business was able to decrease the time to approve by over 75%! In addition, they accelerated sales by 16.2% and grew the customer base by 12.9%. More case studies with real results? Download our free Case Studies eBook here.
Take the next step

The journey from paper-based systems to a dynamic digital platform is transformative, easily highlighting the inefficiencies of manual processes and the compelling advantages of digitisation. If you’re a finance or credit professional with growth targets in any of the above benefit areas, we’d love to chat about how to streamline your operations and propel your business towards a more agile and data-driven future.

Book a no-obligation demo here, or contact us here. One of our friendly credit experts will be in touch.

Pros & Cons of Credit Insurance in Trade Credit

What is Trade Credit Insurance?

Trade Credit Insurance is a risk management tool that protects businesses against the financial loss resulting from the non-payment of trade debts for goods and services. Consider the following scenario.

Top Electronics manufactures and exports electronic components. Top Electronics often sells its components to local and international customers on credit payment terms, allowing buyers to pay at a later date, typically 30 to 60 days after shipment. In some cases, the manufacturer is concerned about the risk of bad debt and non-payment due to various factors, which could include financial insecurity or economic uncertainties. To mitigate this risk and protect cash flow, Top Electronics purchases a trade credit insurance policy from an insurance provider. The provider conducts a risk assessment on the creditworthiness of the buyer/s and either approves or declines the policy based on the amount applied for. In the event that a buyer faces financial difficulties, encounters bankruptcy or simply doesn’t pay, the policy will provide some financial protection when the claim is approved.

The Trade Credit Insurance service involves two main aspects – the approval or decline of the application (which is approved by underwriters), and the claim payout of outstanding invoices in the case of default. But there are challenges in using this service as it has certain exclusions and limitations. We discuss these below.

 

The Six Shortcomings of Credit Insurance

The six shortcomings of Trade Credit Insurance are:

  1. Your business adopts the credit policy of the insurer
  2. Credit insurers rely heavily on financials
  3. Credit insurers are generally slow
  4. Credit insurers focus on their overall loss ratio, not your profitability
  5. Credit insurers’ internal views remain unknown
  6. Credit insurance may not be cost-effective for you

These are explained further below.

 

1. Credit Policy Control

The Credit Insurer Controls Your Credit Policy

This may be helpful for businesses that cannot manage their own credit management policies, but it should be noted that the insurer is protecting their own profits, which could present a conflict in strategies. For example, you may have a strategic need to accept higher credit risk for some customer segments, but the insurer will apply a single conservative credit policy across all. And penalties may apply if businesses trade beyond what was approved.

How important is it to be able to use credit policy to support your business?

Trade Shield

Trade Shield offers a recommended credit limit based on the combination of predictive models and your credit strategy. Businesses are able to maintain and manage different credit strategies for different customer segments, according to the needs of each.

In the case of Top Electronics, the business would’ve been able to apply their own limit, as appropriate for that customer or customer segment. This would’ve allowed a more nuanced approach in support of growth and business strategy.

 

2. Data Sources for Assessment

Credit Insurers Rely Heavily on Financials

Credit insurers rely on recent financial statements in order to calculate expected credit losses. Buyers will need to provide their financial statements to the risk insurer for review. This can become an obstacle in the case of private companies. In some cases, the risk insurer could rely on your business to assist with collecting their financials.

If you can’t get hold of the buyer’s financials, will you be comfortable trading at more conservative levels?

Trade Shield

Trade Shield uses all available financial statements during analysis. In addition, your business can rely on Trade Shield’s predictive modelling that uses numerous data sources. This includes payment and behavioural patterns derived from your own AR/Aging datasets.

In the case of Top Electronics, the manufacturer would’ve benefitted from an almost instant outcome as a result of Trade Shield’s multiple, real-time data sources.

 

3. Turnaround Time

Credit insurers are slow

Today’s insurers typically rely on manual processes and traditional channels, like emails and phone calls, when interacting with customers and buyers. These businesses have not been quick to transform their approaches to digital ones. This slows down the process between application and approval.

Will your business and your customers be impacted by credit limits that take 3 to 5 days to approve?

Trade Shield

Trade Shield delivers over 90% of credit limits within 30 minutes, and most of them almost instantly. Trade Shield has invested in technologies that integrate data from different sources automatically. This data is then run through models and the decisioning framework at high speed to deliver tens of thousands of limits every day.

In the case of Top Electronics, the buyer would’ve applied for credit digitally and the application would’ve been processed and analysis done in real time, providing an outcome almost instantly.

 

4. Targeted Outcomes

Credit insurers focus on their overall loss ratio, not your profitability.

Insurers pool the risk of all their policy holders to avoid negative financial impact. Insurers avoid over-exposure – if credit has already been granted to your customer when buying from your competitors, your submission may be declined. Your ability to trade may be affected while your competitors can continue.

Is it important that you’re able to trade through economic downturns, especially with key customers?

Trade Shield

Trade Shield provides your business with full control over your credit limits. You’re able to make conscious trade-offs for certain customer segments while maintaining visibility of your risk. Trade Shield’s targeted outcome is to maximize the profitability of your extended credit and your business, without trade-offs.

Trade Shield understands that customers need to be treated differently in order to maximise profitability. In the case of Top Electronics, the business would’ve been able to make limit decisions that are appropriate for customer segments, thereby promoting business growth of both parties.

 

5. Transparency

Credit insurers’ internal views remain unknown.

Submissions are either approved or declined without detail, analysis or limit recommendations when declined. Suggested limits can’t guide decision making because the analysis fundamentals are not understood. Independent analysis is needed to fully understand the associated risks and opportunities.

When a credit limit for a key customer is declined, do you want to know the reason? Also, how important is an independent view of a growing customer that you are nurturing?

Trade Shield

Trade Shield provides all the logic and risk analytics for further review if needed. Furthermore, limit recommendations look toward the future and show an independent assessment of where this customer can progress to.

 

6. Cost Versus Value

Insurance may not be cost-effective.

If your business is claiming a significant amount every year then the insurance may be worth the cost. But if you’re only using it for a safe trading limit, and claiming very little, then it’s a very expensive risk mitigation option.

How do you assess the value of the protection and credit limit recommendations from your insurer? How much would you pay for an independently assessed limit?

Trade Shield

Trade Shield is priced in relation to additional profit it delivers. This ensures alignment between Trade Shield’s cost and the value it delivers.

 

What should your business be using?

Credit Insurance is suitable for your business if:

  • Your balance sheet is fragile and non-payment by a customer can result in business failure.
  • Your credit policy has little impact on business strategy and overall performance.
  • Your business has few uninsured competitors. It’s possible that competitors could sell to your customers when the insurer limits your ability to trade.

Trade Shield is suitable for your business if:

  • Your business has a healthy balance sheet that can absorb the expected credit losses.
  • Your business has numerous customer types that require different approaches to credit limit assessments.
  • The high risk of credit losses could have a significant impact on profitability, making predicting payment behaviour important.

Take the next step

The journey from paper-based systems to a dynamic digital platform is transformative, easily highlighting the inefficiencies of manual processes and the compelling advantages of digitisation. If you’re a finance or credit professional with growth targets in any of the above benefit areas, we’d love to chat about how to streamline your operations and propel your business towards a more agile and data-driven future.

Book a no-obligation demo here, or contact us here. One of our friendly credit experts will be in touch.