Companies seeking to protect themselves against unpaid bills from vendors don’t have to just wait and hope for the best. These firms should consider credit insurance, which covers commercial debt, including past-due accounts receivable likely to end up as bad debt. To secure terms, creditors project their annual sales to the vendor whose accounts payable will be covered by the policy.
Credit insurance (also known as trade credit insurance) appeals to companies conducting international business, as a policy has political risk coverage components. Secured accounts receivable can help firms garner more financing from banks. Also, as insurer Euler Hermes notes, credit insurance allows companies to extend more credit to customers whose receivables are covered, thus creating revenue growth.
In short, credit insurance can be an effective tool for companies looking to manage bad debt risk.
But it is not a cure-all.
Credit insurance is no replacement for solid balance sheets for both the debtor and the collector. Simply put: insurers will not take on any undue risk of payment default. Companies must do their own due diligence on potential commerce partners; rest assured that insurers will do the same before deciding whether to write a policy.
There is no one-size-fits-all credit insurance policy. Knowing a policy’s exclusions is vital. And claims must be well-documented, without delay. Finally, debt collection services are not inexpensive, and those efforts could be fruitless in the case of insolvency.
However, credit insurance could very well appeal to companies heavy in accounts receivable. After all, late payment of receivables can create a real feeling of unease. According to insurer Atradius, debts at least 90 days past due lose more than one-third of their value.
Let Plexus lend a hand
The Plexus Groupe can help you understand the complex world of credit insurance. We tailor risk management solutions to your business, and we take a client-focused approach to all we do. For more information, contact a Plexus property and casualty executive at 847-307-6100, or contact us via the Web.