Posted on May 17, 2014
Business owners find that increasing their ability to offer credit to their clientele can help their businesses grow. But extending credit terms to vendors and customers can be a risky business. What happens if they don?t pay?
Some companies go out of business, file for bankruptcy or simply fail to pay their bills despite a business?s best efforts to collect. Credit and account receivables insurance policies help to protect business owners from the risk of nonpayment so that they need not worry about significant losses to income.
Credit and account receivables insurance provides coverage for all types of nonpayment issues whether they are due to business closure, ownership change, bankruptcy or cash flow issues. Companies find the potential to increase sales far outweigh the possibility of buyer credit default. Granting credit enables clients to purchase more products which in turn helps companies to negotiate better prices from wholesale suppliers and also translates into lower inventory costs. By using credit and accounts receivable coverage, companies can open up new avenues of income that might not have been possible without the insurance. Additionally, lenders find companies with proper credit coverage more attractive for lending since they know that company balance sheets are strengthened and debts are secure. Business owners can even assign credit insurance proceeds to lenders as collateral for loans.
The cost of this coverage is usually based on credit terms offered by the company, risk and previous collection history. Credits and accounts receivable insurance is only a small percentage of sales volume so obtaining coverage to fully protect against nonpayment is a win-win situation for business owners.