When it comes down to keeping your business afloat, cash flow is one of, if not the most important thing. Even if your company is monitoring credit controls, there are still risks of not being paid by customers, or other businesses you may do transactions with. This is where Trade Credit (also known as Accounts Receivable) insurance may come into play.
Trade Credit insurance provides protection to businesses if they do not receive payment from customers. It insures your accounts receivable from businesses, giving you protection from bad debts. If a customer does not, or cannot pay what is owed to you, the policy will provide compensation to your business for the loss of cash flow.
Compensation for failed payments is not the only benefit of trade credit insurance. When your accounts receivables are insured, banks and lenders are more willing to provide you with financing.
Accounts Receivable Insurance Example
Let's say a manufacturing company sells goods to a retail buyer on credit. However, the retail buyer fails to pay for the goods, resulting in a payment default. The manufacturing company had trade credit insurance in place, which covered them against these circumstances.
The manufacturing company will then file a claim, providing documentation of the default and the unpaid invoices. The insurance provider will then investigate the claim, and if it is determined that the claim is valid, they would reimburse the manufacturer for the unpaid invoices. This will not include your deductible, or other applicable fees on your policy.
This would allow the manufacturing company to recover the money they are owed and protect their cash flow. This is crucial in the manufacturing industry where cash flow is key to maintaining operations and growing the business.
Client Example of Accounts Receivable Insurance
We spoke to one of our clients that has a Trade Credit insurance policy in place. This client does business transactions with many large companies. If any of these companies were unable to pay them, or happened to go out of business, it would have been a significant loss for our client. The client ended up having to file a claim due to non-payment from a customer that could not afford to pay its invoice.
Without the trade credit policy in place, our clients accounts receivables would have suffered a consequential loss. Once the claim was filed, the insurance company took action investigating the company that failed to make the payment. Although the claim process did take some time to fully be resolved, without this policy, our client would have never seen the money, and in turn, his business would have majorly struggled.
Our client has also used the trade credit insurance to control credit referencing. When this client initially purchased the policy, the insurance company ran credit checks on all of the companies our client does transactions with. This was able to help our client gauge which customers they should or should not do business with. This has been very helpful in potentially eliminating financing risks before they can happen.
If you would like to see if your business is a good fit for trade credit insurance, please give us a call at (303) 279-9700, or fill out the form below. One of our agents will reach out to you shortly.