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Credit insurance costs can be recovered in a variety of ways: Credit insurance allows you trade in the knowledge that if you suffer a bad debt then there is someone to pay (most) of the debt and therefore protect your cash flow and stop your company becoming an insolvency figure itself. Credit insurance allows you to identify the better risks which will in turn allow you to sell more goods to these companies and therefore increase sales. Credit insurance will help protect the most important aspect of your business - the bottom line. A bad debt comes straight out of your profit, you also have to sell extra goods to recuperate this loss, plus don't forget that you have just lost an account and this will also cause a loss of income if it is not replaced (let's run that one by again - if you suffer a bad debt it has 3 actions: 1) you suffer a loss which will come straight off you profit margin for the company. 2) You not only lose the account but the income that goes with it and 3) you not only have to replace this account but you need to put on or increase the others to get back to a breakeven point). 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. Credit insurance can help to enhance your borrowing by either getting the lending rate reduced because you have the security of credit insurance or may allow you to borrow more. 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. Staying with definable costs (don't forget for larger companies, catastrophe insurance may also be a more cost effective soluction than Whole-Turnover cover) you can add the costs to your goods value and get the customer to pay (it's them you protecting yourself against after all) on a £1m t/o company the "average" cost is 0.5% on turnover. 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. 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. 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. |