What is Credit Insurance?
Credit insurance is insurance that you can take out on your customers. This means that should your customer cease to trade, then the amount you are owed, would be repaid and therefore your cashflow would not be affected.
Pro’s
Credit Insurance can be a useful safety net, allowing you to continue offering credit facilities.
Having the credit insurance safety net can allow you to offer credit lines to new customers which may make the difference between them using you rather than your competitors.
Cons
Credit Insurance, due to the nature of the insured, can be expensive. This is usually a deciding factor in whether a company obtains credit insurance or not.
Furthermore, not all businesses are insurable which means that only part of a company’s sales ledger may be eligible. This can be off putting, especially of the largest customer falls in to the “uninsurable” column.
Summary
In the current climate of even the larger businesses failing, the decision to use Credit Insurance is not a straight forward one. The same can be said of offering credit lines to your customers as a matter of course, we touched on this in our ‘weighing up credit terms for new customers’ article.
Obviously, your customers may go elsewhere if they cannot rely on credit terms to manage cashflow and so the role of a credit manager and their team is even more important today as it ever was.
If you want to discuss Credit Insurance further, then please get in touch and we will introduce you to a trusted advisor.
Disclaimer
The information was correct at time of publishing but may now be out of date.
