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Credit Insurance - Worth Considering for Your Business?

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.

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I wanted to send a quick note to let you know what a pleasure it has been to deal with Heather Bonadie. She has been assisting me and my wife over the last few days with auto insurance for a new car. She has been very responsive, informative, efficient and, most importantly, professional and friendly. I work in the professional services sector too and really appreciate someone as talented as she is. A great asset for your team!

Phil Cartwright

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