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Credit Insurance - What does it cost?
The actual simple answer is that it depends. Yes, thanks for that enlightenment I hear you say. but let me explain further, I can show you how in fact you can offset the costs against the (monetary) benefits available:
I say Nothing and that may well be true, depending on a number of factors - how many accounts you have, whether you want to increase your turnover or maybe your borrowings, etc. Below are a number of actual reasons (not sales blurb) why in fact Credit Insurance may pay for itself
1) Credit insurance allows you trade in the knowledge that if you suffer a bad debt then there is someone to pick up the debt and therefore protect your cash flow and stop your company becoming one of tomorrows insolvency figures itself (a bit like health insurance but for a company rather than an individual).
In fact we could just leave it here, but there are other good reasons:
2) Credit insurance allows you to identify the better risks which will in turn allow you to sell more goods to these companies which helps increase sales and therefore profit.
3) Credit insurance will help protect the most important aspect of your business - your profit margin. A bad debt comes straight out of your profit, you also have to sell extra goods to recuperate this loss,
4) To recuperate a bad debt (and don't forget there is the extra risk of increasing your sales to recover the debt) if your gross margin is 10% and you suffer a debt of £10,000 then you will need to make an extra £100,000 of sales to get back to where you were before.
5) Credit insurance can help to enhance your borrowings by either getting the lending rate reduced because you have the security of credit insurance or may allow you to borrow more.
6) Credit insurance is a definable cost, whereas bad debts will come in peaks and troughs and it's just a case of whether you survive those peaks?
7) There are also a number of intangible benefits, the main one being that credit insurance can help you avoid the bad debts by providing a professional opinion as to the credit worthiness of a company, plus most insurers continually monitor for information (both good and bad information) that will give you an up to date view of your customer.
8) If you find that you have a large number of debts that have to be sent for collection - a couple of the insurers will collect these for free (it is in their interests to do so, hence the free service) you can then offset the cost of collections against the cost of insurance - and because the service is free, then you are more likely to use it sooner, which will bring the cash in faster and reduce the chances of the debt becoming bad.
9) If you are exporting, there are language barriers, information (financial) barriers, and time difference barriers when it comes to actually collecting the debt, again the insurer can help with these problems
10) And finally, for now: Piece of mind - sleep in the knowledge that both your company and it's workforce won't be out on the street tomorrow looking for work because a company (through no fault of their own, other than the fact that they didn't take out credit insurance) has let you down.
So, in summary, you can reclaim the costs, it can help you increase your turnover, it protects your company, plus possible fringe services (debt collection for nothing), so in fact it could be deemed an investment because of all the benefits.