Credit insurance is a type of insurance policy that a borrower gets in the event of death, injury, or unemployment, and in rare situations, to pay off one or more current debts. Credit insurance is most commonly provided as a credit card option, with a small portion of the account’s outstanding amount repaid for monthly fees.
Nonetheless, many credit insurance plans are costly in comparison to their advantages and are riddled with tiny language that can make recovery difficult. If you feel credit insurance will provide you with peace of mind, be careful to read the small print and compare the quotation to that of a standard life insurance policy.
Credit insurance gives you not only peace of mind but also the following major benefits:
Catastrophic Loss Insurance
Your receivables are one of your most valuable and most vulnerable assets. Credit insurance protects against future bad debt losses, acting as a safety net.
Ensured Revenue Growth
Credit insurance helps you to expand your business without stress. Whether you’re looking to expand credit lines with existing customers or extend competitive open credit terms to new accounts, employing credit insurance to reduce or eliminate risk is a wonderful approach to securely develop your business.
Increased Borrowing
Credit insurance can give low-cost access to working capital, allowing you to develop while avoiding cash flow issues. Your credit insurance policy can assist you in maximising working capital availability from the receivables you guarantee to your lender. Most ineligible receivables (including concentrations of receivables with a few accounts and overseas receivables) can now be included in your borrowing base with your lender.
Credit Decision Assistance And Customer Information
When you establish a credit insurance programme with Global Commercial Credit, you are receiving more than just coverage for your receivables; you are also getting a credit risk management partner whose mission is to help you avoid credit losses before they happen and to back you up when they do. Credit insurance can also give you useful market knowledge on the financial viability of your clients (buyers) and, in the case of purchasers from other countries, on any trading hazards unique to those nations.
Allows Corporations To Reduce Their Bad Debt Reserve
Credit insurance will enable you to drastically reduce your bad debt reserve and handle write-offs with better precision. By lowering the bad debt reserve on this scale, you would be able to reinvest extra bad debt reserves back into revenue (by provisioning considerably less), hence enhancing profitability, shareholder equity, and financial ratios, among other things.
Aids In Avoiding A Large Unforeseen Impact On Your Firm
To make up for a credit loss, for example, you would have to create a considerable quantity of future sales at $0 profit (over and beyond your typical sales).
