Businesses efficiently keep up with daily demands of pleasing their customers to keeping their account books updated. There are many other administrative tasks to handle that bad debt risk gets overlooked. For small businesses, bad customer debt can significantly dent their financial health.
For successfully thriving, businesses need stable financial health. It also indicates their economic performance. Financial health management includes handling customer payment commitments properly and reducing bad debt risk through procuring trade credit insurance.
What is trade credit coverage?
Trade credit coverage aims to protect your business from financial losses because of default accounts, credit risks, and insolvency from customers. It is designed specifically to lessen the possibilities to account receivables.
Do you need trade credit coverage for your business?
Some reasons why your business needs to buy trade credit coverage
High credit risk customers
Customer bankruptcy is common, which makes payment collection on invoices extremely hard. If accounts receivable are not collected within a specific time, cashflow gets disturbed. Ultimately, the overall financial health of your business gets distressed.
If your business is finding it hard to manage credit risks because you may possibly be offering credit to customers who have high credit risk. Therefore check your credit terms and even consider buying trade credit policy.
Grab sales opportunities
When there is a sales opportunity, businesses need to grab it quickly. There is also a need to evaluate the potential customer’s financial stability and purchasing power legitimacy before extending credits.
However, the possibility of customer buying is greater, when credit is made available. This does not always guarantee that customers will repay their bills.
Gain a competitive edge
Trade insurance policy allows your business to compete with competitor’s credit limits and terms. For example, if your closest competitor offers a credit line of $75,000 with the 60-day term then you can offer $50,000 with the 30-day term [if you can afford], which of the two will grab the business?
Trade credit policy allows you to extend riskier credit terms with awareness that you have a financial protection layer in case of default, insolvency, or bankruptcy.
The need for stable financial health
A small business has 40% of its cash flow involved under accounts receivables. If you are not committed to collecting accounts receivables then your financial stability and health look bad when reviewed by investors or banks.
Trade insurance coverage offers a protection umbrella in case of default. If you ignore buying credit insurance, it can impact your cash flow negatively. This, in turn, can hinder your business growth or attain financial stability.
Trade credit policy can bridge the breach between sales and finances, which reduces collection calls.
There are several options for choosing a reliable trade credit insurer. Businesses around Australia can approach the Niche Trade Credit agency for buying debtor insurance. Australian exporters find it hard to obtain legal documents and pursue debt collection from an international company.
Trade credit policy safeguards you against failed payments or terms. You get a percentage of invoiced money, you owe from the insurer. Thus, your business cashflow is maintained.