With the uncertainty of trade now and in the next few years, Credit Insurance should be a serious consideration around many board meetings.
Real stress will be put upon the cash flow of a number of companies up and down the UK, due to fluctuating prices and the uncertainty with the UK leaving the European Union in 2019
What is credit insurance?
Credit insurance protects your business from non-payment of commercial debt. It makes sure that your invoices will be paid and allows you to reliably manage the commercial and political risks of trade.
While credit insurance indemnifies losses incurred from non-payment of commercial debt, the ultimate goal is to help your business avoid catastrophic losses and grow profitability. The key is having the best information about companies, sectors and economic trends to make informed credit decisions and therefore avoid and minimize losses.
INSUFFICIENT KNOWLEDGE SOURCE OF UNPAID INVOICES
Unpaid invoices can represent up to 35 percent of a company’s assets and are vulnerable to loss if your customers fail to pay. We know that many unpaid invoices are caused by insufficient knowledge about your customers’ solvency.
The knowledge of a Credit Insurance company helps you pick the right customers, markets, and credit limits in order to avoid and minimize non-payment of commercial debt. As a result, you have greater confidence extending more credit to current customers and pursuing new, larger customers that would otherwise seem too risky. If your customers fail to pay, insurers will forward you the cash for the insured invoices and take care of the debt collection.
Any company selling on open account terms can benefit from credit insurance. A number of clients can be found in all sectors and are companies of all sizes. Firms in most sectors of the economy, including business services and those trading actual goods, use credit insurance to help their business succeed.
CREDIT INSURANCE EXAMPLE
If a company’s profit margin is five percent and one of its customers’ defaults on a debt of £100,000, the company will have to produce additional sales of £2,000,000 to make up for the lost profits.
A trade credit insurance policy helps manage your account receivables and compensates you in the event of non-payment. More importantly, the lost cash flow could be devastating. Non-payment weakens your company and lowers its investment capacity.
