Accounts Receivable Insurance
Trade Credit Insurance
Businesses of all sizes must continuously balance the cost of doing business with the risk of doing business. Accounts receivable, which typically represent more than 40% of a companys assets, are naturally a vital component of a healthy business. If a major customer is unable to pay its invoices, or if several customers are unable to pay their invoices, there will be a negative impact to cash flow, earnings and capital. In a worst-case scenario this could literally put a company out of business. These risks require thorough analysis.
Trade Credit Insurance is a business insurance product that provides this analysis but also indemnifies a seller against losses from non-payment of a commercial trade debt. With trade credit insurance in place, the seller/policyholder can be assured that non-disputed accounts receivable will be paid by either the debtor or the trade credit insurer within the terms and conditions of their policy.
Companies invest in trade credit insurance for a variety of reasons, including:
- Sales expansion if receivables are insured, a company can safely sell more to existing customers or pursue new customers that may have been too risky without insurance.
- Expansion into new domestic and international markets.
- Better financing terms in many cases a bank will lend more capital against insured receivables and may also reduce the cost of funds.
- Reduce bad-debt reserves This frees up cash for company operations.
- Indemnification from customer non-payment.
- Trade Credit Insurance supplements and enhances a companys credit department.
To further explore what Trade Credit Insurance can do for your company, the various insurance product available and costs involved please contact: