For most businesses, accounts receivable typically represent more than 40 percent of a company's assets.Yet, most companies insure against every other unpredictable event that has a high potential for loss, but have no insurance against excessive credit write-offs.
Almost eighteen months ago, I found a statistic that stated that almost 25 percent of businesses were considered high or very high credit risks. If you couldn't collect on 25 percent of your revenue, what would happen to your business?
So what's a business to do to protect its cash flow from being decimated by rising bad debt?
Credit insurance can protect you from your customer's inability to pay you due to insolvency or protracted default. It does not protect a business from trade disputes such as faulty goods or missed deadlines nor is it designed to protect against normal bad debt losses.
How can credit insurance impact the ability of a business to obtain financing?
For those businesses that use their accounts receivable as collateral for their lender, credit insurance enhances and secures the value of the receivables to the bank making it easier to secure the best financing terms.
Credit insurance can also enable a business to offer higher credit limits and/or better terms of payment to new and existing customers both domestically and overseas. The bank is going to like hearing that you're generating more revenue without taking on excessive risk.
Credit insurance policies covered over $400 billion of B-2-B sales in the United States this past year. Its availability to help your specific situation depends upon factors including the credit quality of your customers, the experience of the seller, terms of the sale, the diversification in your customer lists and the types of product sold.
Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!
Tags : credit insurance , accounts receivable , cash flow , financing
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