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Posts|October 14, 2020

Protect Your Business From Uncollected Debts

By Natalie Sherod
Risk Advisor CPCU, CIC

Business owners have a number of competing priorities, but protecting the company’s balance sheet will always remain at the top. Strong financials help businesses to invest more into their own growth, attract outside capital and qualify for loans needed for expansion.

According to a study by Allianz, Accounts Receivables typically represent 40% of a company’s assets.

Unfortunately, businesses struggle to collect on some of these receivables and as result, suffer financial losses. Many companies will self-insure this risk, but there could be another option to consider: Credit Insurance.

What is Credit Insurance?

Credit Insurance protects businesses from non-payment of commercial debt. It makes sure invoices will be paid and allows companies to reliably manage the commercial and political risks that are beyond their control Capital is protected, cash flows are maintained, loan servicing and repayments are enhanced, and earnings are secure from these events of default. In simplest terms, Credit Insurance transfers the risk of unpaid debts to a third party.

How Does Credit Insurance Work?

There are two types of Credit Insurance programs.

  1. Named Coverage - Addresses each of the insured’s customers specifically with a limit attached.
  2. “Easy Cover” - Provides a blanket limit over all customers. These tend to have smaller sub-limits.

In both policies, the credit insurer will step in to pay if a covered customer becomes insolvent or there are slow payment issues. *Subject to terms of the contract. 

Credit Insurance is a unique product. Rather than a policy that is touched only a few times per year, this is a dynamic policy that changes frequently based on fluctuating needs of policyholders. It is the credit insurer’s responsibility to proactively monitor its insureds’ customers throughout the year to ensure their continued credit trustworthiness. This is actually one of the unknown benefits of partnering with a trade credit insurer. These organizations have analytical experience and access to resources a typical company may not have. It essentially becomes an extension of your team.

In these uncertain times, trade credit insurance can help protect against insolvency and provide a proactive approach to analyzing the credit risk of new or existing customers.

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