trade-credit-insuranceImagine this scenario … Your company has provided its usual stellar services to a good customer you trust, and you’ve given that company an extended payment deadline. But the payment date comes and goes and no payment shows up. So your accounting department sends out a past due notice, and then another, and yet another. After several notices, you still get no response. When you attempt to contact your customer, the phone number is out of service and the company has seemingly vanished. Now you’re left scratching your head wondering how you’re going to collect your money. In the meantime, you’re unable to grant extended payment deadlines to other customers. You struggle to attract new business and stay profitable, but the unpaid invoice from your longtime “good customer” is putting the squeeze on you.

Not a pretty picture, is it? Few things will shut your business down faster than not getting paid.

Think it can’t happen to you? Actually, payment disruptions due to bankruptcies, defaults, and global political turmoil are on the rise, and they’re a growing risk to your business.

Every time you grant credit to a customer, you expose yourself to the risk of nonpayment. And in today’s economy, businesses are more likely to face bad debt losses and slow-paying clients than ever before. For the average company, receivables can make up 40 percent or more of balance sheet assets, and they have a major impact on cash flow and how investors and banks view the company’s financial viability. One or two bad debts could wipe out your profits for the entire year. Also consider that 1 in 10 invoices today becomes delinquent according to Euler Hermes, a global credit insurance carrier. And bankruptcies among U.S. businesses are skyrocketing, up 46 percent in 2015 according to BankruptcyData.com.

All good reasons to consider carrying trade credit insurance. Also known as accounts receivable insurance or trade credit risk insurance, it’s essentially insurance coverage for your accounts receivable to protect against loss due to protracted default, insolvency, or bankruptcy. In other words, coverage for when you don’t get paid.

How does it work? Most insurers will monitor the financial performance and well-being of your customers, and categorize those customers according to their financial activity. Based on that risk assessment, each of your customers is given a specific credit limit up to which you, the insured, can trade and be able to claim if something goes wrong. In the event your customer can’t or won’t pay you, you’ll be insured and indemnified up to the policy limit.

But trade credit insurance is more than just protection for your receivables. It can also help your business:

  • Secure better bank financing and borrowing terms, since banks feel more comfortable lending with accounts receivables as collateral. Companies that insure their receivables also often get lower interest rates.
  • Gain the confidence to expand sales to new customers and set more aggressive sales goals.
  • Gain a competitive advantage by allowing you to quickly match a competitor’s credit limit and pay terms.
  • Leverage the insurance carrier’s knowledge of buyers’ credit risks as well as credit and political risk conditions around the world.

In short, trade credit insurance can more than pay for itself, and having the coverage can enhance your viability, marketability, and profitability.

You routinely insure your business against property loss, liability, and other unpredictable, high-exposure events. So why would you leave one of your most valuable and vulnerable assets open to loss? Contact the business insurance experts at Relocation Insurance today to find out of trade credit insurance is a smart fit for your business.