Credit Insurance is a financial strategy to protect your business against the failure of your customers to pay their trade debts to you. Credit Insurance is commonly referred to as Accounts Receivable Insurance. It protects your company from credit losses caused by insolvency, bankruptcy, slow payment and, for export transactions; it also covers select political risks. RPI globe
It is difficult to predict which customers will default on payments. Surveys show that almost 50% of payment defaults arise from customers with established long-term stable relationships. Clearly, the past is not always a good predictor of the future. Default cost is considerable, for example, if your profit margin is 5% and only one-customer defaults on a $100,000 debt, your company will need to sell $2,000,000 additional to make up the lost profits. Credit losses weaken your company and lowers net worth. Credit insurance assists you in managing your accounts receivable and pays you in the event of a default.
Any growth oriented company granting open account terms to their customers would benefit from credit insurance. Our clients range from small businesses to multi-national companies engaged in domestic and/or international business.
Credit insurance protects your business against unforeseen loss, provides piece of mind and confidence to expand your business. Key benefits include:
Improved credit control and risk management
Protection against catastrophic bad-debt losses
Elimination of unknown credit risks
Expanded sales growth and profit
Improved working capital and borrowing capacity with financial institutions
Cash flow from claim payments rather than write-offs on unpaid accounts
Premium is computed as a percentage of insured sales. The rate is usually only a fraction of a cent on the dollar, depending on policy structure and risk factors such as prior loss history, trade sectors, average sales terms and your customer base. Many companies recoup the premium expense through sales and profit growth.
Provided the spread of risk you elect to cover is similar to your portfolio you may insure a portion of your business. If your intent is to use the policy as a financing platform, it is advisable to insure your entire portfolio for the maximum limits obtainable.
It is difficult to predict which customers will default on payments. Surveys show that almost 50% of payment defaults arise from customers with established long-term stable relationships. The best time to arrange insurance is in a period of calm and stability. If you wait until losses occur or the economy worsens, you may not find insurance coverage.
The value may be the difference between being able to borrow money or not, especially if you have foreign accounts receivable. If a loan is already in place, credit insurance allows you to borrow a higher percentage against your accounts receivable.
There is a simple application process identifying what your business has been this past year and what your anticipated projections would be if credit insurance was in place to grow your business.
The Insurer usually requires a copy of the transaction documents you already possess - for example -- evidence of a valid order, invoice listing terms of sale, and a transport document. There must be an established valid credit limit on the buyer and you have paid the insurance premium.
Anytime is the right time.
Some Insurers will sell you a policy directly while most require an insurance broker. RPI’s focus is to first understand your business and help you identify your future needs. We then proceed to obtain the best policy to reach your goals.
That policy sale is the start of our relationship rather than a conclusion. We grow with you throughout the policy life, assisting where you need us. Whether it is answering simple questions like how the policy works or obtaining buyer coverage, to more detailed aspects like reviewing entire claim packages for completeness so a claim is paid or providing insight so a new venture or division may be included to maximize insurance coverage, RPI is there to help grow your business.