Unfortunately, a lot of bankruptcies happen due to unpaid invoices. Trade Credit Insurance is a great way to protect your cash flow from political risks and non-payment trade-related debts owed to you. Unpaid invoices can happen for many reasons, but most of them will be out of your control for instance when a customer files for bankruptcy, a judgment has been obtained, the debtor cannot be located and so forth.
Trade Credit Insurance will also protect your business from uncertain political risks, which sometimes can be the reason for insolvency or non-payment of a customer. Depending on the insurance, a waiting period applies once all methods for collecting the receivables have been exhausted but there are many benefits to take out such an insurance policy to avoid large financial loss if a customer fails to pay.
Depending on your policy, such benefits may include complete protection against customer insolvency, protection of profit and cash flow, which are deposited back into your business, the opportunity to expand your business knowing that bad debts are insured, and such insurance furthermore adds security in terms of borrowing money from banks as the lender knows your account receivables are insured.
All of the above, are strong reasons why you should consider taking out a Credit Insurance as such policy can not only help you strengthen your business but support your growth.
To work out which policy will suit your business best, the insurance will inquire about the financial health of your customer and by doing so, improves your overall credit management as the company will monitor the capital of any new and existing customer that you are working with. Based on their research, they will provide you with coverage of a certain credit limit specific for each customer.
Furthermore, they will pass on invaluable information on any financial changes regarding the cash flow of your customer for you to adjust your limits. Based on this information you can then explain your own credit limits to any customer who seeks to extend their credit by saying, you are only allowed to offer such amount of credit based on the current financial situation.
Another benefit of Trade Credit Insurance is that you are taking a relatively low risk by expanding your business in new territories. New locations always mean that you will be dealing with new customers and new laws but knowing insurance protects your cash flow without leaving you with bad debts, you can take that step and focus fully on the opportunity of your business growth.
Despite contract agreements, unfortunately, a lot of small businesses have to file for insolvency because of accounts receivable. If you are still not convinced about getting Trade Credit Insurance, the least you can do to protect your business from bad debt is setting up a good collection management system to stay successful and thriving.
When you establish payment methods, you should know that the more different types of payment your business accepts, whether it be cash, checks, credit cards or online payment methods such as PayPal, the fewer invoices you will have to chase later. A good way to protect your business from bad debt is to always run a credit check on potential clients before the deal to avoid any follow-ups in the future. Together with your finance department, you should furthermore work out internal collections proceedings for invoices which are past due date.
Once a customer has failed to pay, immediately send out a friendly reminder with all the information the debtor needs to pay you. If the debtor has still not paid you after several attempts to collect the receivables it is time to hire a specialist. A collection agency will help you with your accounts receivables in an effective and timely manner.