What would happen to your business if your largest customer couldn’t pay their debts? Even if they simply delayed payment by a few weeks longer than usual, you might be plunged into a cash flow crisis.
That’s the risk that credit insurance protects you from. It’s a mechanism for ensuring that you get paid even when your customer runs into trouble. It could make the difference between the success or failure of your own business.
Credit insurance is also known as debtor insurance. It’s designed to allow your firm to trade in the confidence that should something go awry with a customer’s payments, there won’t be a domino effect on to you and your suppliers.
Different flavours of credit insurance
Each credit insurance policy will be slightly different in regard to what debtors and turnover they cover, how much they pay out and when, and, of course, the price. Some insurers will cover you for export as well as domestic customers.
It’s important to shop around and to be completely open with potential insurers. They’ll want to understand the risks involved in order to provide a solution that’s both cost-effective and gives the level of protection that you’re looking for.
Your customer won’t warn you about cash flow problems
Every years thousands of firms collapse, leaving a trail of unpaid debts. It happens across all industry sectors and to firms of all sizes, and it often comes out of the blue.
Your customer won’t want to give you advance warning that they’re having financial problems. Because if they did, you and their other suppliers would withdraw credit straight away. Quite rightly, you’d want to minimise your exposure, but it would only make the situation worse for them.
Just like any other policy, credit insurance offers you protection against a disaster that could strike without warning. Even if you pay the premiums and never have to make a claim, you’re still buying peace of mind, which can be a huge asset for an often-overstretched business owner.