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Even the most effective credit management cannot avoid the issues that arise from non payment or insolvency. Therefore any business providing products and services on credit terms should seriously consider trade credit insurance.
The value of the debtors ledger is one of the largest assets for most businesses. On average, debtors represent over 40% of a company's current assets. Other business assets are usually insured as a matter of course, yet the receivables often remain uninsured despite the fact that insolvency rates are at an all time high (approximately 880 insolvencies per quarter currently).
It is recognised that having any more than 25% of your business tied up with the one buyer is a concentration risk and yet in many cases a major customer represents a significantly higher percentage of a companies’ revenue. The associated risks are lessened with 90% indemnity in place through a Trade Credit Insurance policy. Consider what would happen if one of your largest debtors failed.
The cost of a bad debt is not just the loss of monies you were due to receive, it is also the stress placed on cash flow, the increase in the cost of funding and the erosion of profitability. $150,000 in bad debt on a 5% net margin is the equivalent to $3,000,000 in lost sales.
Any business providing products or services on credit should consider Trade Credit Insurance, for peace of mind, protection of cashflow and liquidity and for access to additional funding. Anything that’s sold on trade credit terms can be covered with the exception of financial services.
Taking out a trade credit insurance policy has numerous benefits: