According to the reports that I have read, the number of bankruptcy and insolvency cases filed in the federal court keeps on increasing every year. Reports also show that the unemployment rate has been on the rise, since 2006. This is the reason why business owners who are allowing their regular customers to purchase items on credit are having problems collecting unpaid debts. If this is a happening to you, then I think that you are in a big trouble and you need to take an action fast.
How can you secure your account receivables? This is the concern of the majority of business owners. One of the best possible solutions that I can think of is to apply for a credit insurance policy. Maybe you are not aware of credit insurance and if this is the case, I am willing to inform you about it.
The Purpose of Credit Insurance
The other name for credit insurance is account receivable insurance. This insurance policy is designed to protect your business against unpaid debts. In other words, if your customer that is covered by your insurance policy is unable to pay his or her debts, the insurer will compensate for your loss and will pay for the unpaid balances.
The only downside of credit insurance is that you need to pay insurance premiums on a monthly basis. The amount of premium that you should pay is a percentage of the total balance that the insurance company must cover, and it depends on the risk involved in the debtor. If your debtors are high risk, the percentage is also high. However, I personally think that it would be better to pay a monthly premium than not to receive any compensation for unpaid debts.
The Advantages of Credit Insurance
- Protect your business from bad debts, especially when a customer is unable to pay their debts to you due to insolvency, death, or property damage.
- With credit insurance, your account receivables are protected, there will be a guarantee that you will receive payment for those. In case you are supplying your business by purchasing items on credit, credit insurance will help you maintain an excellent credit score, which will enable you to apply for bigger loans.
- Since your accounts receivables are protected, you can now have the confidence to increase your credit lines to your clients, as well as extend it to new customers.
- Credit insurance policies lower the financial risks involved in international trade. Furthermore, this insurance policy is much better than letters of credit, since it is not costly and does not give burden to your customers.
If you are a businessperson, I suggest that you take the necessary actions to secure the financial stability of your business. This is not an easy task, because the economic state of the country is subject to drastic changes. However, you can lessen the blow of bad debts to your finances through credit insurance policies. These policies will keep you safe from unpaid debts.
The author likes to write about finance and credits. His knowledge on IMC Newbury trade credit insurance is unparalleled. Write to him to know more.