Difference between letter of credit and credit insurance

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Business transactions carry a risk which should be covered. We help you to decide between the letter of credit and credit insurance. This two different protections have their strengths while that may be complementary.

LETTER OF CREDIT

A letter of credit is a document from a bank that guarantee the payment of a buyer’s on time and in the correct amount.

Key benefits of the letter of credit

Security for the seller because the financial standing of the buyer is replaced by the bank
Security for the buyer because he is guaranteed to receive the ordered goods or service desired.
Provides legal protection
Allows you to negotiate better prices by reducing the risk of non-payment
Gives better control of business operations
Because of the guarantee, seller can borrow against the full receivables value from its lender.

Disadvantages of the letter of credit

May only cover a single transaction for a single buyer and can be tedious and time consuming.
More Expensive then credit insurance
Lengthy and laborious claims process (several weeks to several months depending on the case)

CREDIT INSURANCE

Trade credit insurance, also called accounts receivable insurance, is a business insurance that protects your company against losses from nonpayment of a commercial trade debt.

Key benefits of the credit insurance

Access to financial information on prospects and buyers
Commercial advantage : you can easily explore on new customers or market as you have access to financial information of your prospects
The credit insurer knows business practices according to destination, which enables secure control contracts
Compensation in case of default (recovery management)
Guaranteed protection against non-payment or slow payment : Coverage of all portfolio buyers
Speed of implementation (collateral demand, rapid response)
Expands a company’s financing options by increasing its borrowing base with secure receivables
Enhances efficiency of a company’s internal credit department with fast credit limit requests and ongoing buyer monitoring.