by Heather Smart Johnson
Answers to questions about business credit insurance, trade credit insurance, and accounts receivables insurance.
Q. Is business credit insurance the same as credit life or credit disability insurance?
A. No. Credit life or credit disability insurance is obtained by individuals to help pay debts in case of loss of income. Business credit insurance (also known as trade credit insurance, export credit insurance, or just credit insurance) is used to reduce the risk of nonpayment in B2B transactions and is obtained by the company offering the goods or services, rather than the company receiving the goods or services.
Q. Why should I purchase trade credit insurance?
A. In addition to guarding your business against your customers’ problems, such as cash flow shortages, bankruptcy, or even political instability, trade credit insurance may result in more favorable lending terms.
Q. Can credit insurance help me grow my business?
A. Yes. Credit insurance may help you feel more comfortable selling your goods or services on credit terms since it reduces the risk of nonpayment.
Q. How does account coverage work?
A. Your broker can work with an insurance carrier’s underwriter to insure the portion of your accounts receivable portfolio that makes the most sense. Depending on what you would like to accomplish, you may have options to insure domestic sales, export sales, or both. Other options include insuring your largest customers or companies that owe more than a certain dollar amount.
Q. Is it possible to exclude certain accounts?
A. Yes. Sales to a particular client may be excluded from a policy.
Q. How much do I have to pay to use a broker?
A. There is no additional fee to use a broker. By law, you will pay the same rates for the coverage you choose whether you use a broker or work directly with the insurance company. However, a broker helps you evaluate quotes and implement your new policy. Brokers can also help with mandatory reporting requirements and may help you review future claims submissions.
Q. Does a credit insurance policy replace my credit and collection processes?
A. No. A credit insurance policy should be used as a supplement to good business practices.
Q. Are you going to call my customers?
A. No. Your customers will not know that you have trade credit insurance unless you tell them. This may change if they become delinquent and you need to file a claim.
Q. How long does it take to get a quote?
A. Plan on spending about 45 minutes to an hour to fill out an application. Your broker should be able to provide quotes for multiple insurance carriers in about two to three weeks.
Q. What happens if I start doing business with a new customer after I get my policy? Can they still be covered?
A. Congratulations on the new business! Simply work with your broker to request coverage for your new customer.
Q. I have long-standing relationships with my customers and they have always paid in the past. Is credit insurance really necessary?
A. The short answer is yes — because things can change. Business insolvency is predicted to increase due to global events. Evaluating the risk of non-payment requires considerable data collection and analysis. Your broker can help you figure out the right amount of coverage for your situation.
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