Over the past five years, the proportion of Vietnamese exporters using deferred payment terms has risen significantly, now accounting for 60–70% of total export value to major markets such as China, the EU, and the United States. While deferred payment is a common practice in international trade, it inevitably exposes businesses to risks: delayed payments or even outright defaults by buyers.

According to a 2024 survey by Allianz Trade (formerly Euler Hermes), more than 40% of businesses worldwide experienced at least one case of late or non-payment. Similarly, a 2024 report by Coface revealed that over 45% of companies in the Asia–Pacific region faced overdue payments exceeding 90 days, with 8% categorized as “high risk” with a strong likelihood of full default. For small and medium-sized enterprises (SMEs), a single large bad debt can disrupt cash flow, undermine debt repayment capacity, and derail growth plans.

In this context, Trade Credit Insurance emerges as a proactive financial risk management solution, protecting companies’ cash flow and assets against customer payment defaults, both domestically and internationally. If a buyer fails to pay or becomes insolvent, the insured company is compensated for the agreed portion of the loss under the policy.

Who Should Use TCI?

TCI is particularly valuable for companies with deferred payment export contracts or domestic trade agreements not fully secured by bank guarantees. Typical sectors include:

- Agriculture and seafood: Frequently sold under open account terms, especially to China, the Middle East, and the EU. For transactions secured by irrevocable Letters of Credit (L/C), TCI may be unnecessary. But for deferred payment contracts, it becomes an essential shield.

- Textiles and footwear: Often under FOB or CIF contracts with 30–90 day payment terms. Highly exposed to counterparties’ liquidity issues or consumer demand volatility in Europe and the U.S.

- Light industry, materials, equipment: Exporting to ASEAN and South Asia, exposed to both commercial payment risk and political or currency risks.

- Electronics and technology components: High-value contracts with multiple installment payments. A single buyer insolvency could cost millions of USD.

- Pharmaceuticals and chemicals: Typical payment terms of 60–120 days. Emerging markets may impose sudden foreign exchange controls, freezing payments.

- Domestic trade: Selling on credit to distributors, dealers, or retail chains. Defaults here can be just as damaging as in international trade.

Common Misconceptions About TCI

Despite its growing relevance, TCI is still misunderstood by many businesses.

One common misconception is that TCI is designed only for large corporations. In reality, SMEs are often the ones who need it most, as they typically lack dedicated risk management teams. Insurers now offer flexible packages, with premiums starting from just a few thousand USD.

Another myth is that TCI only applies to exports. In fact, TCI also protects domestic transactions whenever goods or services are sold on credit.

Some believe that TCI only pays out when a customer declares bankruptcy. In truth, coverage extends to late payments beyond agreed terms without valid justification, as well as political risks such as war, sanctions, or foreign exchange restrictions that prevent settlement.

It is also mistaken to view TCI purely as a compensation product. Most insurers provide broader value by assessing counterparties’ creditworthiness, monitoring risks throughout the trading relationship, and even assisting in debt collection.

Finally, some assume TCI only covers existing customers. On the contrary, one of its greatest benefits is enabling companies to expand into new markets or work with new buyers with confidence, as insurers conduct due diligence, assign credit limits, and share the risk with the business.

Dual Benefits for Businesses and Banks

For businesses

- Safeguard cash flow and profitability: Reduce exposure to uncollectible receivables and maintain stable liquidity.

- Support market expansion: Confidently sell on credit to new customers and markets.

- Enhance creditworthiness: Demonstrating structured risk management helps secure larger and cheaper financing.

- Optimize resources: Reduce the need for large in-house credit control teams thanks to insurers’ support in credit assessment and monitoring.

For banks

- Mitigate indirect credit risks: Prevent exporter defaults that would otherwise impact lenders.

- Enable safer lending: Provide faster disbursement and higher credit lines, with TCI serving as additional collateral.

- Align with Basel II and Basel III standards: Support risk diversification and compliance with global banking regulations.

- Foster sustainable credit growth: With exporters better protected, banks can expand their loan portfolios without fear of sudden spikes in non-performing loans.

Conclusion

Trade Credit Insurance is more than a safety net after a loss — it is a comprehensive financial risk management solution. For exporters, it ensures resilient cash flow and supports long-term competitiveness. For banks, it provides assurance to lend more safely and sustainably.

As Vietnam’s exports approach USD 400 billion annually, proactively protecting cash flow with TCI is no longer optional — it is a strategic imperative for businesses striving to compete and grow sustainably in the global marketplace.