Trade Credit insurance, export insurance, and accounts receivable insurance are all terms that broadly fall into a bucket we call credit insurance. In this article, I’m going to give a quick overview of what this insurance is, what it does, who it’s for and how to buy it. The crux of all the different types of credit insurance policies is to protect you, the business owner from non-payment of your accounts receivables by your customers.
You insure you building, contents, inventory, work in progress and other assets – but what about what could be one of the largest assets on your balance sheet – your accounts receivables?
It may not have ever crossed your mind because credit insurance is often an under utilized form of coverage that many insurance brokers don’t think about selling, and many business owners don’t know it exists.
But I’m sure what has crossed your mind from time to time is what happens if a large order that got shipped wasn’t paid, or a customer ran up a balance on account like never before and you worried you wouldn’t get paid. Or, you brought on a new customer but didn’t know their payment history and while you were happy about growing your sales, you worried about collecting receivables.
So what do these types of policies do?
They protect your sales made on credit if your customer doesn’t pay.
They also can protect sales made to customers in most foreign countries where two separate credit risks arise. The first is traditional credit risk – our customer doesn’t pay their statements and the second is political risk – where the country your customer is located in prevents payments from being made to American firms.
Why purchase Credit Insurance if you’ve never had a problem collecting receivables from customers?
Economic conditions change and change quickly. A big box retailer you sell goods to may be a significant credit risk and finding out when it’s too late can bankrupt specialty importers and sellers like you. Even customers you’ve sold to for years can go out of business and leave you holding the bag.
But there’s an upside to credit insurance. It can help you expand sales and credit terms offered to existing customers as well as new customers, knowing your receivables are protected.
You can grow your international sales as well with confidence you’re protected.
You may even be able to obtain better financing terms with your bank since your AR is insured.
Finally, many credit insurers offer their customers access to their global credit knowledge base of the firms you’re doing business with so you’re aware of payment history and credit alerts before extending more credit to risky customers.
What does credit insurance cost?
Good question. Premiums for credit insurance are based on the volume of your AR, who your portfolio of customers are, and the industry you operate in. Conservatively speaking the rate is around a quarter of one percent or 0.25% of sales, often less, sometimes more. If your company does $25M in sales than your annual premium would be in the $62,500 ballpark. For a more accurate proposal we’d be happy to canvass the market for you and make sure you’re getting the best offer available.
What types of businesses can buy Credit Insurance?
Credit insurance is a B2B type of insurance so firms that predominately sell to other businesses generally qualify and typically most insurers are looking for a firm’s annual sales to be around $5M or greater. Smaller firms may qualify for coverage with certain insurers.
How do you buy Credit Insurance?
You can go online and find a variety of insurers that sell credit insurance and fill in their quote forms and then compare terms and conditions between multiple insurers. Or you can contact us and we’ll canvass the marketplace from all insurers in the market to find you the best terms and conditions with greater efficiency and ease of doing business.
Have other questions or want to speak to a specialist – you can reach out to me and we’ll connect you to our credit specialist.