Which of the following is a key characteristic of trade credit insurance?

• A. It guarantees investment returns
• B. It covers risks associated with supplier failures
• C. It provides coverage against non-payment by customers
• D. It only applies to domestic transactions

Answer: (C)

Trade credit insurance is primarily designed to protect businesses from the risk of non-payment by their customers. This type of insurance provides coverage against scenarios where a customer fails to fulfill their payment obligations, thereby safeguarding the insured company from potential financial losses. It enables businesses to engage with new customers and expand their sales on credit with reduced risk, promoting growth and encouraging commerce.

The emphasis on protecting against non-payment aligns with the core function of trade credit insurance, which is to manage the credit risk associated with selling goods and services. Consequently, companies can operate more confidently, knowing that their receivables are protected.

In contrast, while supplier failures and domestic transactions are components of broader risk considerations in trade, they do not specifically define the purpose or characteristic of trade credit insurance. Additionally, guaranteeing investment returns is not a feature relevant to this type of insurance.