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Trade Credit Insurance vs Letters of Credit
Exporters have several tools available to help manage payment risk.
Two of the most commonly used are Trade Credit Insurance and Letters of Credit.
While both help reduce risk, they work in different ways.
What is a Letter of Credit?
A Letter of Credit is a commitment from a bank that payment will be made to the exporter once specific documentary requirements have been met.
It is typically arranged before the transaction takes place.
How is Trade Credit Insurance different?
Trade Credit Insurance protects exporters against the risk of non-payment after goods have been shipped and credit has been extended.
Rather than replacing trade, it supports businesses trading on open account terms.
Why does the difference matter?
The choice often depends on:
- The relationship between buyer and seller
- Market practices
- Commercial competitiveness
- Risk appetite
Different transactions may require different approaches.
A simple example
A new buyer may request a Letter of Credit to provide payment security.
An established buyer relationship may instead operate on open account terms supported by Trade Credit Insurance.
Both approaches help manage risk, but in different ways.
How Etihad Credit Insurance (ECI) helps
Etihad Credit Insurance (ECI) supports exporters by:
- Providing protection for open account trade
- Supporting business growth in international markets
- Helping exporters manage payment risk effectively
👉 Explore ECI’s trade credit insurance solutions.