What Is Credit Risk Insurance And Why Should One Get Your Company One?
Credit risk insurance is an insurance policy that serves as a business’ risk management tool. It protects from risks of non-payment from their customers. Sometimes, customers who the company has accounts receivable with after the delivery of goods and services, end up having difficulties. These issues may include paying their obligations perhaps due to these companies’ cash flow problems, insolvency, or some dispute with the transaction. In any of these reasons, credit insurance will protect the company.
There are indeed, benefits of getting your company a credit risk insurance and these are the following:
Better Credit Decision
In getting credit risk insurance, your underwriter will also make an active research about the accounts that one wanted to have insured. Credit checks conducted by these professionals are more reliable rather than if one would do it because of their extensive experience and training for this task. This will also leave the person more time to focus on other more urgent serious duties.
Safe Increase of Sales on Credit
There may be times when a customer will have to purchase items on credit more than what his stated credit allows because of increasing needs. Some customers who the company are not yet that familiar with wanted to make a purchase but on a credit basis. A company would normally hesitate on granting sales to customers in these situations, but they also could not afford to let go of the chance to increase their sales and profits. Credit risk insurance will enable them to have sales even with customers in these situations, because they have a truly minimal risk of non-payment.
Greater Chance of Being Granted with Loans
A company who is applying for a loan can have a greater chance of getting approved if credit risk insurance protects its receivables. This is because lenders will also have additional protection from a company’s non-payment. Therefore, there is exceedingly minimal chance that a borrowing company will suffer from loss or insolvency. These may be due to uncollectible accounts receivables.
Protection from Customer’s Catastrophic Loss
If one thinks that the regular and frequent payments of a customer will guarantee your company from future defaults in payments, think again. There may be factors that may cause them to have difficulties in paying their accounts, which they cannot control, such as a catastrophe, which hit their area and destroyed much of their assets. With credit risk insurance, your business is protected from loss from these uncontrollable and unforeseeable events.
When consulting with a credit risk insurance provider, one will be further enlightened on how your business will benefit from the above. Analyze your business especially your line of customers, your credit practices, exposure to risk, etc., and figure out how a credit risk insurance can improve your profitability. When taking the time to think about these factors and the benefits enumerated above, one can expect to have a better understanding with the credit risk insurance provider and, in the end, you will both arrive at the credit risk insurance that will fit your business’ needs.