This is a confronting question for most businesses. How much would you need to turnover in sales to replace lost profit? If you are working on a profit margin of 10%, for every $100,000 of profit lost to the business you will need to turn over another $1,000,000 in sales to replace the lost income. Or put simply you will do 10 times the amount of work to cover the lost money.
How would your business cope if one or two of your major customers fell over? Trade Credit Insurance protects your cash-flow by covering your losses if a debtor defaults on payment or becomes insolvent, giving you the peace of mind to focus on running your business. The security it provides may also boost your borrowing capacity with your bank.
The key benefits to trade credit insurance are:
- In the event of insolvency of non-payment of a customer, trade credit insurance provides you with swift access to replacement capital, protecting your cash flow, before permanent damage is done to your business.
- A trade credit insurance policy can provide you with support and confidence to extend larger credit limits, more favourable trading terms and alleviate buyer concentration risk issues. Gain a competitive advantage in the market because your competitors are!
- Protect customer payments as you grow your business and be confident of dealing on open credit terms. Obtain greater access to information on your customers having an insurer assess your risk.
- In today’s environment its not uncommon for a long standing company to fall insolvent showing no signs of distress and paying
within terms. A trade credit insurance policy will provide you with far greater access to information than you would otherwise be able to obtain, while at the same time providing you the tools to get paid faster from defaulting clients.
- Most trade credit insurance policies have a clause that will cover costs associated with collecting an overdue debt – which can sometimes run into the thousands. Protect yourself against a preference claim which can occur up to 3 years from time of insolvency.
- Credit insurance allows some credit management functions to be ‘outsourced’ and delivers greater efficiency. This through covering the hard costs of collection and legal fees when chasing an overdue debt and saving your credit team time by not having to check trade references or assess limited information from a credit report.
- Are you struggling with cashflow difficulties? Trade credit insurance can support and strengthen access to credit facilities from financial institutions who can be named on the policy as a loss payee. A policy may help reduce financing costs.
- Replace your bad debt provision with a trade credit insurance policy to improve the balance sheet and inject those funds back into the business as working capital. The trade credit insurance premium is tax deductible and you will receive a much larger reserve than you would otherwise carry. Funds are placed back into the business through a claim payment, rather than taking out unrecoverable money
from a bad debt provision.
As insurance professionals, Mitchell Insurance Management can walk through the numerous coverage points Trade Credit Insurance is designed to respond to. We can help to mitigate your risks and minimise what can be a significant financial impact on your business or your personal assets should the unexpected happen. If you would like to know more or discuss this further please contact us.