With Cheltenham festival about to begin, it got us thinking. Do you back horses just because you like their names? As we got talking, many of us agreed that a catchy name decided on whom we’d back. Others preferred to understand the form of the horse before backing it. Would you offer credit terms to a customer because you like the sound of their name? Unlikely! CMR believes trade credit insurance is the credible tipster that you need to help guide you over the hurdles in business life.
What is Trade Credit Insurance?
It is a policy that insures the risk of a customer who defaults on payment when you have extended credit terms. Whilst offering credit terms to your customers is beneficial as you may gain more business opportunities, risk must be built into the equation. Businesses have a choice: to protect that risk or hope that businesses will pay up at the time agreed.
Why offer Credit Terms?
Many businesses across the UK and the world rely on credit terms so they can earn the money before paying for the goods – the equivalent of using a credit card. Thus, they can manage their cash flow better. If companies have better cash flow they can buy more and in turn sell more. The result: bigger profits. If you can offer these terms as the supplier, it means your business will not only benefit from your customer’s growth, but you will also grow.
What’s the Risk?
Much like our horse racing analogy at the start of the blog, the risk is like backing a horse because you like their name. If you offer credit terms to customers on a hunch, it is more than likely you will come unstuck. Credit insurance alleviates risk. Like a tipster or a form guide, the underwriters can steer you to the good risks. A good risk is a company that will pay their invoices and therefore increase your turnover and minimise bad debts. Ultimately, the purpose of credit insurance is to protect and pay claims against non-payment, but another advantage is that it can be used as a sales tool too. The-up-to-date information that the credit insurers have on most businesses is to your advantage and you can decide to whom you wish to offer credit terms.