What is credit insurance and how will it benefit my business?

In its most basic form business credit insurance is credit insurance that businesses purchase to insure payment of credit extended by the business (accounts receivable).

Credit insurance is there to do the following:

  • Inform your clients of the credit worthiness of the people they want to trade with, identifying those who are good to trade with, and not so good.
  • Collect any over due amounts owed to you
  • Protect against payment default, whether this be due to insolvency; continued payment default; or because of political instability.

Credit insurance can help to reduce your overall debtor days.

Studies showed that credit insured suppliers are paid on average 10-15 days quicker than non credit insured suppliers. Credit insurance companies can pressurise late payers by either threatening to reduce their levels of cover, and also through their collections departments.

Particularly “top heavy” companies will often credit insure in order to reduce the risk of a sales ledger which is structured in this way. Policies can be structured with this in mind.

Companies who are already suffering bad debts will credit insure to protect against the potentially catastrophic effects of these losses, and to help reduce the frequency of these losses.

Companies who are currently exporting, or who are looking to move into export, will often credit insure to safeguard this trade. They can also get potentially hard to find information on their export clients, as well as taking advantage of the world wide collections facilities which credit insurance companies will often provide.

People are more frequently saying they would like more accurate, up to date information on their customers. Because credit insurance companies are not just relying on dated information filed at companies house, they are able to accurately monitor companies and look out for signs of distress.

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