Most business leaders recognize the need for insurance to protect themselves from unexpected, catastrophic losses. If prompted, you might even describe your business as “totally insured.” After all, you probably carry liability, property and casualty, and commercial auto insurance, just to name a few. But of all the assets you have covered, are you protecting one of your largest and most vulnerable ones – your accounts receivable?
Most businesses do not, and the biggest reason for this is a simple lack of awareness of a product called trade credit insurance (TCI). Euler Hermes is the world’s oldest and largest TCI carrier, covering nearly $1 trillion in receivables annually.
About Trade Credit Insurance
TCI is a tool used to reduce or eliminate the risk of non-payment of commercial debt. If a policyholder’s customer fails to pay an invoice, the insurance company steps in and pays instead. This assurance allows a company to be much more comfortable taking on new and unknown clients, providing critical protection from unforeseen economic, business or other factors that affect its clients’ abilities to pay their bills. It can also enable a company to do more business with existing clients since it can extend more credit without increasing the risk of non-payment.
TCI accomplishes this by giving the policyholder access to the insurance company’s credit risk analysis resources, and ability to monitor domestic and global developments that could affect a customer’s ability to pay its bills. Few companies on their own can rival the expertise or resources of a major global trade credit insurance provider like Euler Hermes, but nearly everyone can access that expertise by purchasing insurance.
Key benefits of trade credit insurance
Many companies initially purchase trade credit insurance to protect capital, cash flow and earnings. While certainly an important benefit, there are several others that can actually offset the cost of the policy premium many times over, even if they never make a claim.
The first such benefit is sales growth. Armed with TCI, a company can safely and strategically expand its businesses to new and existing customers, thereby increasing sales and profits.
TCI also provides a company better borrowing options, increasing its access to working capital. Banks typically limit what you can borrow against your receivables based on perceived risk factors such as buyer concentrations, foreign customers, and average age. When your receivables are covered by a credit insurance policy, you may be able to borrow more — often at more favorable rates.
Also, since TCI places a ceiling on bad debt losses, you can release a significant portion of your bad debt reserves — a move that can have an immediate, positive impact on earnings. And you’ll be replacing non-deductible bad debt reserves with a credit insurance premium that is a fully tax deductible business expense. For companies that export or are looking to start exporting, TCI levels the global playing field and win more business by offering safe open terms overseas.
Wondering if TCI is right for your business? Contact me today for a consultation