Why Businesses Overlook Trade Credit Risk? Part 2

My last article described several reasons why businesses owners and financial managers overlook the risk of getting paid. In Part 2, I’ll describe two ways that credit insurance helps a business better manage their risk.

Increase operating efficiency

Many times, a business’s human resources are stretched so that besides basic credit functions, they simply don’t have time to proactively monitor the customer base.

With a credit insurance policy in place, Coface offers the client proactive monitoring through a worldwide team of underwriters and analysts. This provides the client with a huge information gathering capability such as:

• claims filed against buyers/customers
• industry sector payment trends
• payment trends by country
• financial statements on individual companies
• database of over 80 million companies
• millions of actively monitored companies

Credit insurance becomes the first-pass at establishing customer credit. By off-loading the work onto the credit insurance underwriters, a company can stretch its staff further, reduce operating cost and operate more efficiently while being more informed about the customers at the same time.

If Coface approves coverage on the customer, no other action is needed by the in-house credit staff. If coverage declined or partially approved, only then is further credit investigation by in-house staff necessary. This stretches resources and reduces the cost of credit information since credit reports are only needed on accounts refused for insurance coverage.

ROI of Credit Insurance 

By proactively protecting themselves  from credit risk, a business gains a return on investment in credit insurance. I’m sure other forms of insurance offer an ROI, but credit insurance specifically is a growth tool the helps in several key ways that can be quantified.

1. Mitigation of customer nonpayment risk
2. Extension of more favorable credit terms to customers
3. Extension of credit to new customers
4. Obtaining better financing terms from lenders
5. Expansion into new markets
6. Reduction of the needed amount of bad debt reserves
7. The business also benefits from the insurer’s expertise and gains peace of mind – after all, what’s the value of an unpaid invoice?

In the future, I’ll write a more detailed article on the ROI of credit insurance.

Conclusion

Proactively managing credit risk through a credit insurance policy helps your company grow, access capital and stretch human resources to operate more efficiently. Contact me to quantify the benefits for your business!