With every sale, there is a chance the buyer will not pay and non-payment can be damaging, or even catastrophic, to a seller.
One or two bad debts can wipe out profits for the year.
The unexpected can happen.
Want to mitigate this risk?
How do companies manage bad debt risk?
Self-insurance
- Companies earmark cash for bad debt reserves.
- However, self-insurance fails to protect against very large, unexpected losses and negatively impacts cash flow and the balance sheet.
- Companies that tie up capital with self-insurance hamper their ability to invest in growth opportunities and often become very conservative, especially in international markets.
- These companies also must take on the total responsibility for evaluating the creditworthiness of customers.
Bank/Invoice Finance provider Bad Debt Protection
- There is a significant cost.
- When collection of debt is turned over to an aggressive third party, companies risk alienating customers.
Letters of Credit* and Payment in Advance
These normally apply to international sales. Unfortunately…
- …they limit the amount buyers can or will buy.
- …they are expensive.
- …they generally have to be set up on a transaction-by-transaction basis.
Trade Credit Insurance
Though there is a modest cost, trade credit insurance has many advantages
- Analysis of the viability and financial stability of a potential customer
- Bridge the gap between the sales and credit departments
- Assist with streamlining the accounts receivables and collections departments
- Cover Losses while selling on Consignment Stock
- Cover Losses Due to Political Risk
- Covers Losses that occur before goods are invoiced
Trade credit insurance provides protection against unforeseen losses that even the best credit departments can’t see coming.
Trade Credit Insurance provides businesses with protection against failure and substantial delays in receiving payments. What may seem catastrophic at first is bearable with a policy structured to fit your business requirements.
Trade Credit Insurance provides businesses with protection against failure and substantial delays in receiving payments. What may seem catastrophic at first is bearable with a policy structured to fit your business requirements.
For any Trade Credit enquiries, contact one of our experienced brokers today.
