Credit insurance gives your business room to grow safely. You can thrive, your staff remain motivated, and you are more confident about the future. But growth also carries risks. Like the risk of your clients not honoring their accounts.
Let’s look at how Business Credit insurance helps ensure that this risk does not threaten your business.
What is Business Credit Insurance?
Business credit insurance, also called credit insurance or export credit insurance, is a form of insurance that transfers risk to businesses that want to protect their accounts receivable from default.
How does Business Credit Insurance work?
The seller files a claim for the buyer’s outstanding debit balance (AR). To settle the claim, the insurer confirms the buyer’s outstanding debt, and takes steps to collect the debt (including legal action if necessary). In exchange for the seller assigning his interest to the insurer, the insurer pays the seller.
How is Business Credit Insurance priced?
It depends on the insurer and if the protection is for one or more buyers. The premium is generally calculated by:
for multiple buyers, it is a quoted rate × estimated volume of $ of insured sales per year, or for a single buyer, it is a listed rate (one rate per year) × $ balance of accounts receivable to cover. (ie comparable to a loan).
Who are the insurers in the commercial credit insurance market?
Credit Eureka partners with more than 25 high-quality insurers around the world, each with different geographic capabilities, industry knowledge, and pricing.
What Is the Importance of Business Credit Insurance?
Business credit insurance policies are designed to meet your needs and offer a number of key benefits:
Businesses with business credit insurance can increase their sales by offering customers and prospects more favorable credit terms and eliminating the need for expensive letters of credit.
Access to new markets
Commercial credit insurers protect against unique export risks by providing companies with the market knowledge necessary to make informed decisions in foreign markets.
With regard to sales on credit, business credit insurance protects organizations against the risk of default or insolvency of a customer.
Cash flow reduction
Business credit insurance provides cash flow relief when a company’s clients become insolvent or do not pay their bills on time. Losses can be offset, allowing the business to maintain its cash flow.
Reduce the risk of concentration
Business credit insurance reduces risks for businesses whose earnings depend on a select number of customers.
Business credit insurers provide businesses with access to professional business credit analysts who can share best practices with a business’s credit department.
Business credit insurance provides access to profitable collection services.
Facilitate bank financing
Banks generally offer more favorable credit terms to companies that insure their accounts receivable.
Business credit insurance also provides access to professional portfolio monitors that track clients’ ability to meet their financial obligations to the insured company.
What companies benefit from credit insurance?
Whether you’re a local start-up or a global investor new to the UAE, businesses of all sizes, across a wide variety of industries, can take advantage of credit insurance. In essence, any business that sells goods or services and/or provides credit to customers is the best candidate for credit insurance.
While all businesses operating in high-risk industries will benefit from credit insurance, some industries, such as mining, energy, metals, and automotive, will benefit more from business credit insurance.
When deciding whether your business will benefit from credit insurance, consider whether the total amount of your debtors is enough to damage your products, services, or your business in general.
The last thing you want to do is wait until your bills are unpaid to buy credit insurance. At this point, it may be too late or they may end up paying higher rates due to increased risk.