There are many costs that coincide with running a business. These costs can either help increase your profit or quite simply reduce them. Insurance policies have always been put in the latter category and quite rightly so.
How often do you actually make a claim under your buildings insurance? This isn’t to say it isn’t needed. If your building did fall down, then this could affect your company’s existence so your buildings insurance is very much needed. However, this policy will not help with making more money. This is the same with car, contents and also public liability insurance policies as they would all come under the same bracket as buildings insurance. As important as they are for securing the future of a company, they will not increase your profit.
Credit insurance is considerably different to most other insurance policies. Whilst it will secure the existence of your company and it is still a cost to your business; credit insurance is unique. It’s not just a form of insurance that will pay a claim if a customer becomes insolvent or struggles financially. It is also a tool that can help with your own cash flow and credit control procedures, which will have a direct impact on your profit. Here are some of the effects credit insurance can have on profit:
- Credit insurance helps you make the right decisions. When you receive a new order, you would generally check the creditworthiness of the customer, whether they are real and perhaps you would check their accounts. What if they were from a country you have never traded with? Would you order a credit report from that country? There are many decisions that need to be made to mitigate the risk of suffering a bad debt. With a credit insurance policy, the credit insurer does all this for you. It lets you more easily approach new clients and expand your business with existing clients by offering greater credit terms. From the time you have credit insurance in place, you no longer need to make uninformed decisions. Credit insurance lets you change your behaviour without being at risk and this may let you increase sales and therefore increase profit.
- Credit insurance supports your credit control. You have to monitor every customer that you deal on credit terms. This is the role of your credit control team and no matter how organised they are, the monitoring of customers on credit takes up a lot of time. Credit insurance monitors these customers that you have extended credit. With a credit insurance policy, there are procedures that have to be met to prepare claims. These procedures have proven to support your credit control team. If payment from a particular buyer isn’t forthcoming, debt recovery action will need to commence. With a well-managed credit insurance policy, your debt recovery costs will be covered under the policy. This support means you can spend less on internal credit management procedures and therefore increase profit.
- Credit insurance may be used to support your financing agreement as it can be assigned to any financing institution, bank or factoring provider. Financing helps with cash flow; giving you more buying power, which in turn puts you in a better position to increase profit. When your debtor book is protected with credit insurance, it often helps with the price of your financing agreement and therefore reduces your overheads…increasing your profit further.
- Credit insurance acts as an early warning of struggling customers and gives you the information to stop selling to buyers before they turn insolvent. Being a creditor within an insolvency procedure means effort and time. We all know the saying. “Time is Money!”
- Last but not least, credit insurance covers the losses you suffer from customers who struggle with cash flow or become insolvent. Covering these losses directly protects your profit.
These are just some of the benefits of credit insurance and its link to profit. Basically, credit insurance is not only there to pay claims but to also improve your company and make it more profitable. The fact it makes internal processes easier, helps you decide which customers to deal with and gain more funds from your bank/financial institutions shows that credit insurance isn’t just for protection. If you would like further information, please do not hesitate to get in touch.