IN the intricate operations of modern commerce, credit insurance emerges as a pivotal tool, safeguarding transactions and nurturing the bonds that underpin B2B interactions.
At its core, credit insurance serves as a protective shield against non-payment.
It provides cover against the risk of businesses not being paid for goods or services that they sell. In essence, it enables businesses to extend credit to customers without the ever-looming uncertainty of payment.
Beyond its fundamental role, credit insurance encompasses two critical dimensions: commercial risk and political risk.
Commercial risk safeguards businesses from customer insolvency or deferred payments. Meanwhile, political risk extends protection against external events beyond the control of businesses or customers, such as political upheavals, natural disasters, or economic challenges.
The benefits of credit insurance are far-reaching and extend beyond financial security. It can also empower businesses of all sizes, from micro-SMEs to multinational giants, across diverse sectors.
While shielding against non-payment remains credit insurance’s primary advantage, it can also facilitate sales expansion, opening doors to heightened sales prospects.
It emboldens businesses to engage with new customers, by offering a safety net in case payments falter. This assurance serves as a catalyst for business expansion and market diversification.
For those venturing into international territories, credit insurance acts as a compass amidst uncertainty. It mitigates risks associated with overseas transactions, enabling businesses to explore global avenues with enhanced assurance.
Credit insurance also carries significant weight in the realm of finance. Financial institutions are more inclined to extend capital to businesses fortified by credit insurance, resulting in improved financial terms and opportunities.
But, at its core, credit insurance provides a safety net against non-payment. In situations where customers are unable to fulfil their financial obligations, credit insurance intervenes, paying out a substantial percentage of the outstanding amount, in most cases 90 per cent.
The mechanics of credit insurance include safeguarding against bad debts arising from insolvency or payment defaults. It offers a comprehensive shield. Underwriters assess each buyer, determining credit limits for specified time frames, often spanning from 30 to 90 days.
An ongoing evaluation ensures that businesses operate with a clear understanding of their credit landscape.
The main asset of a business is your debtor book, so why would you not protect your debtor book, when that's your main income?
:: Eileen O’Brien is credit insurance executive at AbbeyAutoline (www.abbeyautoline.co.uk)
