How credit insurance can protect you in case of nonpayment

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. This, obviously, has put a strain on many organizations.

Therefore, if businesses want to stay afloat in these tough economic times, they need to be able to collect the payments owed to them and, almost as important, collect them on time.

“More companies are turning to credit insurance to protect themselves during the economic downturn,” says Brian Slife, vice president and account executive for Aon Risk Services Inc. “Credit insurance protects against the risk of nonpayment of trade debt; that is, amounts owed to you arising from goods or services 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.

Smart Business spoke to Slife about credit insurance and how it can help businesses 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. And, it 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 you’ll be able to increase export revenue through competitive, but secure, credit terms.

Both small and medium-sized organizations enjoy the protection and outsourced credit evaluation provided by credit insurance. Not only that, there is a significant growth in the purchase of credit insurance by multinational organizations. These companies are looking to protect against large credit exposures while achieving a commonality of credit management across their national operations, so credit insurance is very attractive to them.

How does credit insurance help the bottom line?

Credit insurance can be used to enhance your receivable portfolio, which in turn allows competitive financing, improved ‘cost of funds,’ and the ability to negotiate advance rates. This can apply to the full spectrum of facilities, from invoice discounting to off-balance-sheet securitization.