One of the key components of the recession has been the banking industry’s reluctance to extend credit to businesses across the country and around the world, putting a strain on many organizations.
Therefore, if businesses want to stay afloat in these tough economic times, they need to not only be able to collect the payments owed to them, they need to be able to collect them on time.
“More companies are turning to credit insurance to protect themselves during the economic downturn,” says Pat Cantwell, director for Aon Risk Services Central Inc. and a member of its Special Situations Group. “Credit insurance protects against the risk of nonpayment of trade debt, which are the amounts owed to you as a result of goods or services that you have supplied.”
While standard credit insurance covers insolvency and nonpayment for domestic and/or export trade, companies can also add protection for political, pre-credit and work-in-progress risks. Analysis in work-in-progress may also help prevent unexpected or negative outcomes in today’s volatile credit environment.
Smart Business spoke with Cantwell about credit insurance and how you can use it to help your business in any economy.
What are some of the key benefits of credit insurance?
Credit insurance protects your profit-and-loss (P&L) statements and balance sheets by transferring payment risk to your insurers. It facilitates access to financing and helps you obtain improved terms from the banking market. The banking market is changing daily, and terms that you may have secured in the past are subject to change overnight. Further, credit insurance provides access to complementary debtor evaluation tools and expertise that underpin the credit decision.
A good credit insurance policy will enhance your credit management and help you comply with corporate governance best practices. You’ll be able to increase sales through secure credit lines on your customer base and increase export revenue through competitive, but secure, credit terms.
Both small and medium-sized organizations benefit from the protection and the outsourced credit evaluation provided by credit insurance. There has also been significant growth in the purchase of credit insurance by multinational organizations. These companies are looking to protect against large credit exposures that seem to be appearing overnight, irrespective of their country of origin, while achieving a commonality of credit management across their national operations. That makes credit insurance very attractive to them.