Organisations without credit insurance have little protection against bad debt and damage to their cash flow. No matter how well a business knows its market and buyers, insolvency and payment default are significant commercial risks that can affect cash flow, profitability and confidence.
Mark Hoppe, managing director of Atradius, ANZ, said, “Even if you have dealt with a buyer for many years, or they are a well-known enterprise, you can never be in a position to predict the future and gamble on it. Being credit insured safeguards the company against risks that could otherwise cripple your business.”
RELATED TOPIC: Australia's top insurance companies 2013
Atradius has identified four key ways credit insurance helps to mitigate business risks:
1. Gain valuable insights and knowledge about your buyers to make smarter business decisions. A good trade credit insurer will add value to your business by acting as your eyes and ears on the ground, checking that prospective clients’ stability, creditworthiness and reputations meet the required standards. These insights will help you be better informed to make strategic business decisions.
“Our underwriting teams have access to live data on more than 100 million businesses and mitigate risk for your business,” Hoppe said.
2. Reduce your business exposure to unnecessary trading risks. Factories and offices are often the first assets businesses insure. However, one of the largest assets on an organisation’s balance sheet, trade receivables, is commonly left uninsured and vulnerable to risk. The average business receivables asset makes up about 30 to 40 per cent of the ledger, meaning that without appropriate credit insurance, your company is exposed to significant risks.
“There are great risks associated with not insuring your trade receivables,” Hoppe said. “Having comprehensive coverage against non-payment by customers is important.”
RELATED TOPIC: five risk management issues for SMEs
3. Stay ahead. Credit insurance lets you focus on sales and business growth, while reducing any negative impact that non-payment might have on your business. This gives the organisation a clear advantage over competitors, protects profits and provides peace of mind.
4. Cover losses that aren’t your customers’ fault. Certain incidents, such as political intervention, currency exchange issues, terrorist attacks and natural disasters can’t be attributed to your customer, but will have equal effect on your bottom-line. Credit insurance policy can cover for these losses and protect your cash flow.