Credit insurance – how it can benefit your business

A previous article (“Keep credit risk under control”, The Hardware Journal, September/October 2016) explored how credit insurance can protect you from losses arising from bad debts and how it can be tailored to your business to complement your credit management. James Riordan of Credit Risk Brokers advises us here of some of its additional features and benefits.

The credit insurance market contains a vast database of the most up-to-date financial and payment information on companies of all sizes both in Ireland and further afield.

Making the grade

Stats from just one insurer indicate that they have currently underwritten insured credit limits on over 12,000 Irish companies. This means that, most likely unbeknownst to them, a large
proportion of Irish businesses (including HAI members) have been graded by one of the credit insurers. These ratings are regularly monitored by experienced underwriters and assessed, based both on their recent payment profiles and most up-to-date financial info. The grade assigned to the company by the insurer will, in many cases, generate an immediate limit response. The direct practical benefits of this information pool for a business are manifold and can help improve relationships and credit arrangements with both its customers and suppliers.

Importing on credit

If a company is importing on credit, the likelihood is that the debt is insured. A specialist broker will negotiate with the insurers to ensure that your suppliers are obtaining the very best cover available on your business.

For example, sometimes an importer finds that their credit terms are restricted to 30 days. Very often this is because the supplier has credit insurance and the credit limit is not big enough to offer longer terms. A specialist broker can help to increase the credit limit, which then enables longer credit terms, and the importer may be able to sell the goods and get paid before having to pay the supplier.

Benefits of credit insurance:

• If you invest in a credit insurance policy you can release your bad debt provision, thereby improving your balance sheet.
• Reduce the time spent by your credit controller(s) assessing your buyers/debtors. Time-consuming credit assessments can distract your team from other tasks, the insurer will do the assessment for you.
• Make informed decisions based on quality information. Insurers already have grades in place on many buyers so credit decisions are made quickly and in many cases, immediately.
• Grow sales safely with your existing buyers and explore new customers, armed with both the best available information and protection against non-payment.
• Sales growth will result in higher profits, which, in turn, will more than cover the cost of the policy.
• If you engage with the credit insurers you are more likely to obtain improved credit terms from your suppliers, thereby improving cashflow.
• Once a policy has been tailored to a business’s specific needs it can be agreed for up to three years in length, locking in a competitive rate for the years ahead.
• All credit insurers offer a debt collection service and some cover the cost of this.

This Business Support article featured in the January/February 2017 edition of The Hardware Journal.