Within commodity trading, two forms of credit insurance in particular are used: Single Risk and Multi Buyer. Both solutions have different functions and suit different trading structures.
Single Risk
Single-risk credit insurance focuses on one specific debtor or transaction. This form is often used for large, one-off or project-based deals where the risk is concentrated on one counterparty. Single Risk can also be used for new trading relationships or transactions with buyers in countries with a higher risk profile. In this case, cover is fully tailored to the specific transaction or debtor, including contract terms, volumes and maturities. This creates a tailor-made solution that allows traders to cover targeted risk without having to insure the entire debtor portfolio.
Multi Buyer
For trading companies with a broader customer base, Multi Buyer credit insurance is often a more efficient solution. In that model, a selected portfolio of debtors is insured and revolving credit limits are set for each buyer. The insurance provides protection against non-payment, both in the event of insolvency and prolonged non-payment. In addition, the insurer often assists in credit management and monitoring the financial position of buyers. For companies that regularly supply multiple customers, this model provides economies of scale, greater predictability and a relatively simple operational structure.
Smart commercial decisions
However, credit insurance offers more than just protection against default. Insured trade receivables are generally considered less risky by banks, which can improve access to trade finance. In addition, insurers' credit analysis provides valuable insights into buyers' creditworthiness. This helps organisations make more informed commercial decisions and develop new markets or customers with greater confidence.