Credit insurance is an interesting product that is receiving a
lot of talk and becoming a product of interest for many
companies.
Most companies extend credit terms to their customers, so that
payment can be made after their products have been sold. Credit
insurance protects you against unexpected or catastrophic losses
due to customers' insolvency or non-payment.
There are many benefits to credit insurance, some of which are
obvious and others that are a bit more hidden. Credit insurance
strengthens your balance sheet by securing your cash flow. This
makes you more attractive to banks when looking for your own
financing. Lending institutions may extend more favourable
financing terms if they are named beneficiary on a credit insurance
policy. This could mean lower interest charges and reduced
borrowing costs.
While all companies should consider credit insurance, it is
particularly useful for companies that:
- Have large, concentrated receivables from a few buyers
- Are presently trading on letter of credit terms and wish to
offer open account terms
- Operate in low profit margin industries and must minimize their
bad debt losses
- Want to improve their financing terms and conditions
- Are experiencing a consolidation of the number of potential
buyers
- Have developed a new product but are unfamiliar with the buyers
or their financial stability
- Are expanding their sales into unfamiliar regions or
countries
- Manufacture highly customized and client specific products
- Have profitability results that are very sensitive to economic
recession
- Are exposed to the political risks of international
customers
The impact of a single credit loss could be the equivalent of
the gross profit on several months of new sales. Credit insurance
is definitely worth taking a look at and making an educated
decision as to if it is right for your business.