Not to be confused with the consumer insurance product that covers debt payments in case of unforeseen circumstances such as illness, disability, job loss, or death, business credit insurance covers loans that companies give to other businesses in the form of trade credit, or the ability to pay for goods or services after they have been received.
Credit insurance is known by multiple names that can be used interchangeably: credit default insurance, nonpayment insurance, and credit risk insurance all mean the same thing. Credit insurance is a type of property and casualty insurance.
Credit insurance covers a substantial portion of the risk that companies take by offering trade credit, whether the business they provided goods or services to defaults or payment is delayed. Credit insurance may also cover the political risk of export receivables, meaning your company may be covered if there is political unrest, if a currency is not able to be converted in a foreign country, or even due to acts of terrorism.
Free Tools Offered by CreditInsurance.com
With credit insurance, your company can increase sales by raising credit limits to existing business partners and even offering credit to new clients. Credit insurance can also help your company get accounts receivable financing as a lender can be named as the policy beneficiary.
Companies are charged a premium for credit insurance. Premiums are generally charged on insured sales volume, but sales-based pricing is not the only option. Other options include coverage, A/R, and flat-rate methods.
The credit insurance policy usually covers a portfolio of trade credit or open accounts and pays an agreed-upon percentage of the unpaid insured accounts receivable balance not to exceed the insured limit of coverage. The premium rate is based on the average credit risk of the insured portfolio of open accounts. Occasionally, a company will take out a credit insurance policy for a single transaction by a single buyer, for instance, a large purchase by a new client.
Many businesses need credit to be able to purchase goods and services. Granting credit can give your company a competitive edge. Credit insurance can help mitigate the risk and help secure sustainable growth.
Want to speak to a professional about your Credit Insurance needs?
If you would like to be notified when new blog articles are added, fill out the form below.
See how much more you can borrow by having Credit Insurance.