Credit insurance is a type of life insurance policy purchased by a borrower for the purpose of paying his/her existing debts in the event of death, disability, and some cases of unemployment. Credit Insurance plays an important role in maintaining the profitability of any company by protecting its profit, cash flows, sales growth, and a company’s customer base. It helps companies expand their business against customer defaults. Credit insurance makes sure that no default payments are made, and there is an easy flow of cash. Such insurances maintain the profitability of any business.
How credit insurance makes your business more profitable can be explained by the following points.
Protecting cash flow
Credit policy protects the company’s cash flow in cases of non-payment by a customer. If any customer is unable to make the defined payment or non-payment due to any other reason, it does not affect your company’s cash flow. Simply meaning, the company is not crippled due to the non-payment and continues to work effectively. There is a continuous flow of cash, in spite of situations of non-payments.
Improves customer relations
Companies run regular risk assessment activities and monitor cases of late payment, debt issues etc. This allows them to respond accordingly to the problems and manage the risks. In this way, there’s an improvement in the relationship of customers with the company. Good customer relation lowers incidences of bad debt.
Expansion of sales
Credit insurance leads to expansion of sales. A boost in confidence to extend trade credit to new customers increases because of credit insurance. With credit insurance, you get the confidence to explore higher risk business opportunities you would normally avoid because of the fear of non-payment.
Improves banking relations and access to finance
Credit insurance allows gaining greater access to a bank’s funding because their receivables are insured. In this way, there’s greater access to funds/finance. It also helps the policyholder to qualify for larger credit lines against better terms.
Hence, for businesses to run profitably, credit insurance is a perfect answer to their problems.