Credit Insurance – A Primer
There are a lot of corporate insurance policies, right from one for the employees, to manage their health and safety of the workplace; ensuring physical stock to almost anything that is essential to the running of the business. However, perhaps the most important one for the financial health of the company is credit insurance. Credit insurance is a vital tool that protects your cash flow when the business cycle is taking a turn for the worse.
Now, let us take a look at some of the major features of the credit insurance policy and why you need to be covered under credit insurance. Here are the four key reasons for you to go ahead with credit insurance for your company.
1. Guaranteed Payments
The World Bank has stated that “Trade credit insurance is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods and services”. Credit insurance helps you with a collection of dues which can otherwise dampen your cash flow. As we know “cash is king” and, tight cash flows in a tight economic cycle could affect the balance sheet and in the worst case, cause a business to shut shop. A credit insurance policy will act as a safety net, thereby providing you with a platform to trade with confidence.
This policy covers up to 90% of a contract’s value and protects your company not only by reducing exposure but also by shielding you from defaulting customers and bad debts. In short, this is a vital risk management tool.
2. Grow your Business
Selling on credit can be a necessary evil for the growth of a business. While there is an element of trust when it comes to dealings with trading partners, insurers providing credit insurance have reliable tools to determine the creditworthiness of your customer. Credit insurers issue ‘early warning signals’ to your company. This is done when a potential partner is uninsurable or when previously granted insurance cover has been withdrawn. By playing a proactive role in assisting your company trade more securely, a credit insurance cover can help you make better decisions.
Thus, the sales of your company can grow and that growth will be safe growth with no to limited defaults.
3. Deterrent to Defaults
Credit insurance acts as a deterrent for those who are used to defaulting payments. Defaulters can be delisted or blacklisted from doing any further business with banks and other financial institutions i.e. the cost of compliance falls on the defaulters. This incentivizes them to keep their “credit ratings” in proper shape with credit insurers as they now understand the implications of not only losing one client but potentially many of their clients who will be alerted on their payment defaults.
4. Banker’s Comfort
When you have credit insurance, even your bankers feel more confident that your receivables are safe. This will urge them to bank with you by extending new loans and lines of credit for business expansion. Because of the higher quality of receivables backed by an insurance policy, the bank will also be more willing to extend working capital finance at lower costs.
Now that you know how credit insurance can not only safeguard your business but help it grow, it is time to find the right team of professionals to work with. New Age Insurance Brokers has hands-on experience in credit insurance across myriad industries. Please e-mail us at email@example.com and we will be more than happy to help you!