In addition to increased risk of non-payment, international trade presents the problem of the time between product shipment and its availability for sale.
This asset may then be viewed as collateral by lending institutions and a loan based upon it used to defray the expenses of the transaction and to produce more product.
Trade credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy.
[2]: 198–200 This helped to increase the salability of commercial paper,[2]: 198–200 which stimulated trade, especially in a world before credit cards.
Hopkins made his credit risk assessments entirely in his head based on intuition guided by firsthand knowledge of the note's author and how he ran his business.
It had much in common with Hopkins's main activity, investing, being essentially another form of placing bets on businesses and businessmen who he thought were likely to succeed.
The practice of endorsing notes for a fee had been known in London before Hopkins's activity in the U.S. but had been nearly unknown in the U.S.[2]: 198–200 Formalized trade credit insurance was born at the end of the nineteenth century, but it was mostly developed in Western Europe between the First and Second World Wars.
Insurers countered these criticisms by claiming that they were not the cause of the crisis, but were responding to economic reality and ringing the alarm bells.
The Statement of Principles included: In 2009, the UK government set up a short-term £5 billion Trade Credit Top-up emergency fund.