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Credit insurance is the secret weapon every business’ arsenal should have

on Friday, 15 February 2019. Posted in Finance

Companies with credit insurance know more so they can grow more – especially during such uncertain economic times

Credit insurance is the secret weapon every business’ arsenal should have

There’s clearly a great deal of economic unease right now and many businesses see this as a reason to look inwards, delay investment decisions and take an extremely cautious approach to trading. However, even during economic uncertainties there’s a way to seize the initiative, trade with confidence and take advantage of new opportunities: credit insurance. It’s a particularly powerful tool in a company’s armoury, for not only can it protect from bad debt, it also supports business growth.

Knowledge is power

The more you know about a customer, market or territory before you start doing business, the better equipped you’ll be to manage the risks and maximise the opportunities of your trading relationships. But amid the excitement of taking on a new client it can be tempting to rely on websites, directories or references to fill you in. However, that’s not enough to verify you’re dealing with a legitimate business. After all, people can create the illusion of reputability very easily. For instance, if a company has ever had an unfavourable reference from a bank or trading partner, you can rest assured they won’t let you or anyone else see it. So what’s the workaround?

A renowned credit insurance provider is by far the most ideal source of information on a potential customer. The data’s sure to be up to the minute as insurers need the most current data to assess their own risks accurately. This not only minimises adverse effects from unforeseen failures but also lets companies focus sales efforts on financially healthy customers.

Reward trustworthy clients

Striking the right balance between winning business and setting payment terms is just one of the many challenges companies face. Present customers may well be inclined to buy more with an extended credit line and new ones might find you a more inviting prospect if you don’t insist on advanced payment. But, despite the buzz of a new orders or an increased order from an existing customer, maintaining positive working capital is vital. So are such allowances really risks you can take? 

A frequently neglected benefit of credit insurance is it opens up the possibility of negotiating more favourable terms with suppliers and customers. It may also enable you to access loans, overdrafts and funding on better terms, which you can then pass on to a customer.

Moreover, an insurer regularly evaluates each of your clients to ensure you’re trading at the right credit levels. This not only protects you from dealing on risky terms but gives you the chance to gain a competitive advantage by extending credit to more financially robust customers. 

Protect your sales revenue

Let’s say you’ve done everything right in undertaking due diligence with a new customer but regardless, non-payment still strikes, leaving you with an unexpected gap in your cash flow. How could you possibly safeguard from that?

The truth is, no company is immune from the risk of a bad debt and one insolvency can cascade through an entire business network. You may know your customer but you don’t necessarily know theirs – but a credit insurer will.

A credit insurance policy is the simplest, most cost-effective way to replace cash flow lost through client insolvency or non-payment. Additionally, claims are often straightforward and once assessed and validated, paid within 30 days. This allows you to focus on growing your company, not on whether you’ll get paid.

As with most aspects of business, preparation and intelligence are the keys to success. And if a company accepts the right advice, runs the right checks and takes the necessary precautions, they won’t only manage uncertainty but capitalise on any opportunities which arise. 

This article comes courtesy of Coface, a world-leading credit insurance provider

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