Credits or accounts receivables are often the most crucial asset of a business— especially in today’s economy. You just can’t afford to have your customers not pay the amounts they owe from your company!
While the world debates the value and usefulness of a mask to stem the transmission of the Covid-19 virus, a comparable debate regarding the usefulness of trade credit insurance as a viable financial tool gains new focus.
I typically avoid any introduction of politics into business affairs as a general position. However, as it relates to the utilization of masks to reduce the number of future cases of Covid-19 transmission, I suggest that it can’t hurt and it most likely will help. Therefore, let’s use them until we have the situation under control.
What does this have to do with the utilization of trade credit insurance?
Business mortality is as certain as human mortality. Generally, those businesses who take care of their financial health live longer than those who chose a different path. Having managed through the last 6 recessions as the chief underwriter for the world’s largest trade credit insurer, I have a firsthand view of what is referred to as “a pre-existing condition” within the realm of business mortality. Trade credit insurance is like the “mask”, as it helps protect a business from being infected by others.
Trade Credit Insurance has been a commercially viable product since the mid-1800’s. However, the use of the word “insurance” provides little insight into the actual working of the services and products provided by these underwriters.
To emphasize this point: a short story about a young man who left the safe confines of a commercial bank in the Spring of 1973 to embark on a career with the largest and oldest trade credit insurer in North America.
Some background; the young man had previously worked as an accounting clerk in the finance department of one of the country’s largest and earliest established railroads performing the usual debit/credit functions that comes from the transport of product between seller and buyer. Once university studies had ended, he left the railroad and joined one of the most esteemed trust companies in the nation at that time. He was again deep into the process of balancing numbers and transactional accounting.
Have you ever been involved in an automobile accident? Likely the answer is “yes” and equally as likely the experience was not pleasurable.
What does this have to do with trade credit insurance, you might ask? Wreck the car compared to not getting paid for the goods and services provided to your customer; both are losses you expect your insurance carrier to make right. After all, you paid your premium, you expect to get your claim paid. Pretty simple expectations.
Unfortunately, most people view trade credit insurance in the same light as auto insurance, or property insurance, or any insurance product. A loss is indemnified. I would venture to say that even the dozen trade credit insurance providers operating in the USA spend most of their marketing budget drilling down on the topic of protecting a business from the perils of not getting paid from their customers.
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