In almost every state, it is illegal to own a car and not have car insurance. It’s almost unthinkable that someone would own a house without having home insurance. We have these types of insurance to protect ourselves from unfortunate situations that could end up costing us more money in the long term. So why don’t we protect our businesses and cash flow in these same ways?
Trade credit insurance exists for this very reason. If you’re a B2B organization that offers credit to customers, trade credit insurance offers a way to protect your cash flow and accounts receivable from a bad customer. If a customer were to go bankrupt, you’re not taking a massive hit. Instead, you’re able to cover your losses.
Trade credit insurance allows a company to:
- Protect their accounts receivable against default risks
- Extend competitive payment terms without worry
- Allow extended market share by moving business deals abroad
Just as you would shop around for home insurance or car insurance, it is important to also shop around for trade credit insurance. You will want to look at what the cost of the insurance will be versus what you will get out of the insurance. It’s important to ask questions like what percentage of your buyer portfolio is accepted by the insurance company or if you will continue to have the freedom to create credit limits yourself or if those will be deemed by the insurance company.
As always, even if you choose to use trade credit insurance, you still need to put your best foot forward when attempting to collect on your accounts. Many insurance companies want to see a collection effort put forth before they help you recover your losses. You also don’t want to accidentally file a claim against a customer when you have yet to speak to them, as you may damage that client relationship.