Credit Insurance

Credit insurance is an insurance product used in foreign trade to mitigate buyer credit risk. When an exporter offers credit payment terms such as open account (O/A) or documents against acceptance (D/A) to an overseas buyer, if the buyer fails to pay due to bankruptcy, default, or political risks (such as war or foreign exchange controls), the insurer will compensate for the loss according to an agreed percentage. Use cases include: transactions with new customers or in high-risk countries, large long-term orders, and buyers requesting relaxed payment terms. Points to note: it typically does not cover 100% of the loss (the compensation ratio is about 80%-90%); the buyer's credit limit must be approved in advance; premiums are linked to the buyer's creditworthiness, payment term, and country risk; and the exporter must fulfill obligations of truthful disclosure and accounts receivable management. Difference from export credit insurance (ECI): credit insurance is broader and can include commercial credit insurance, while ECI often specifically refers to policy-based insurance provided by official export credit agencies. Difference from factoring: factoring focuses on financing and receivables management, while credit insurance only provides risk protection and does not directly provide financing.