You can insure your accounts receivable with trade credit insurance. This protects your cash flow by compensating you for unpaid invoices. Depending on your policy, credit insurance usually covers:
- Customer bankruptcy
- Political risks that may impact your customers’ ability to pay
- Refusal or inability of your customer to pay within the terms of your contract
Benefits of accounts receivable insurance
Insuring your accounts receivable is good business practice. It forms the central core of strong credit risk management strategies practised by all sizes of business from SMEs to multinationals. The benefits of accounts receivable insurance – also known as trade credit insurance and debtor insurance – include:
- Protecting your business from the bad debts of others
Whether through insolvency, default, or political risks, your customer may fail to pay you. Credit insurance means that, no matter what (in line with the wording of your policy), you still get paid. No matter how long you have known your buyer you don’t always know what is impacting their business.
- Exploring new markets and growing your business
Credit insurance is used by many businesses to enable trade. It can be particularly useful when exploring new markets as most credit insurance companies will conduct their own research into your prospective customers, adding another layer to your own due diligence. The expertise and knowledge of underwriters working in your sector can also further support your understanding of a potential market and underpin your decision-making processes.
- Improving your access to finance
Banks tend to be risk averse. Credit insurance can help you demonstrate your bottom line is secure and can, therefore, enhance your negotiations with finance providers.
How to find the right accounts receivable insurance for your business
Trade credit insurance is designed to protect the accounts receivables of all sizes of business. No matter whether you’re responsible for the accounts of an SME, a national business that trades solely within New Zealand, or a multinational trading worldwide, there will be a solution that is ideal for your business and its needs.