Trade credit is the amount of credit that a business is willing to give to their suppliers or their debtors. A vast majority of the businesses all around the globe work on credit. They sell goods on credit and then receive inventory from suppliers on credit as well. However, what if a debtor reneges and fails to pay on time? Your company’s cash flow will be drastically affected, and it could even lead to liquidation. It’s recommended that you mitigate the risk by purchasing a credit insurance policy. There are many reasons that you should invest in these policies. Here are a few things that you should know about buying a credit insurance policy.
What Is it?
The accounts receivable is the amount of money that a business is liable to receive. It must be paid by the debtors after a certain period of time, depending upon the business’ financing policies. The business records the accounts receivable value whenever the financial statements are produced. This is recognised as an asset. But, what if a debtor fails to pay the amount that they are due? Your accounts receivable will take a hit, and your bad debts will continue to rise. If this happens regularly, your business will be exposed to a considerable amount of risk. You need to make sure that you buy trade credit insurance to mitigate this risk and ensure that your company runs smoothly.
There are several private insurance agencies that offer credit insurance policies to their customers. The first thing that you need to do is to compare quotes from several companies before making a decision. Always ask for quotes from several companies to find out how much you can get an insurance policy for. You will obviously want to save as much money as possible on the credit insurance policy.
The premium varies based on a variety of factors, such as your credit recovery policies and, more importantly, the extent of bad debts that you have incurred in the past. If your company has a history of letting debtors off the hook, the insurance will obviously cost you more money. You will need to provide comprehensive information about your accounts receivables and your practices before making a decision.
Extent of Cover
What is the extent of cover provided by the company? You have to make sure that you find out about the extent of cover provided by the company. These are just a few simple things that you need to know about buying a credit insurance policy. Take your time to review your options before making a decision, and it’s best to compare your options carefully before you buy the policy.