Taking a closer look at credit protection cover for businesses
IN today’s competitive business environment, being able to operate on credit has become part of everyday business practice.
However, conducting transactions on credit with unknown customers in an unpredictable political and economic setting is not without its risks.
Commercial, political and economic doubt or danger may all impact debt repayments by clients – and not receiving the money you are due on time (or at all) could be very detrimental to your business, putting a strain on cash flow and operations.
Credit protection (or trade protection, as it may also be known) effectively safeguards against these risks.
Its purpose is to protect a business against its debtors failing to pay outstanding debts due to insolvency, bankruptcy or defaulting.
How credit protection works – clearing common misconceptions
ý Many are still under the miconception that credit protection is overpriced and complex, and consequently these businesses do not insure their debtors.
However, the cost of credit protection insurance varies depending on which policy is chosen and which pricing structure is used.
For example, the premium may be calculated as a percentage of sales or as a percentage of all outstanding accounts.
ý Another misconception is that credit insurers only insure good debtors.
This is simply not true, as many insurers will insure marginal debtors as well.
Several insurance companies also offer customised cover to suit specific business needs, such as insurance against a certain buyer or buyers, transactions or amounts.
ý It is important to note that commercial credit protection insurance is not the same as commercial credit life or commercial credit disability insurance.
These insurance policies protect the business from any loss of income due to the injury or death of the business owner.
The benefits of credit protection
Credit often represents a significant portion of a business’s total assets, and is therefore imperative to insure.
Ultimately, it could ensure the continuation of your operations or prevent you from defaulting on your own financial obligations.
Therefore, it plays a key role in securing your business’s success over the long term.
The benefits of such a policy include safeguarding your cash flow, improving customer relationships and their debt support, as well improving banking relationships and access to finance for your business.
Additionally, this cover supports economic and company growth.
Credit insurance can give your business the comfort to increase credit allowed to current and new customers, without having to worry about potential payment defaults.
An additional benefit of a credit protection policy is that it may allow your business to enter into new markets and do business with more suppliers than would have been possible if more conservative credit protection policies were in place.
Credit protection could be a valuable addition to your business’s insurance arsenal, particularly as the economy continues to be strained, increasing pressure on businesses and consumers alike.
Chat to your financial adviser or insurer to get your business protected.