Each time you extend credit to your customers, your company runs the risk of not getting paid. In fact, there is a greater chance that a business will experience a loss in its accounts receivable than any other asset.
Just as you insure your company against property loss, liability, or other unpredictable events, it’s important that you do not leave one of your most valuable – and vulnerable – assets unprotected. Accounts receivable coverage through trade credit insurance offers small business owners the opportunity to trade confidently and with less risk.
Managing the Risk of Non-Payment
Trade credit insurance is a financial tool that manages both commercial and political risks and provides protection against your customers’ failure to pay their trade debts. This can happen for any number of reasons, ranging from insolvency to legal issues or world events that prevent your customers from paying within the agreed timeframe.
Your accounts receivable are a critical component of your balance sheet. Regardless of the reason for non-payment, the lost revenue directly affects your company’s cash flow, profitability, and investment capacity. A trade credit insurance policy helps you manage your accounts receivable and compensates you in the event of non-payment.
Many unpaid invoices are the result of insufficient knowledge about your customers’ solvency. Having the best possible information about companies, market sectors, and economic trends is key to making informed credit decisions and minimizing losses.
Expertise in Overseas Markets
For clients dealing with overseas businesses, Summit Financial Resources recommends working with a knowledgeable credit insurance firm such as Euler Hermes. Euler Hermes can provide in-depth data on companies or knowledge of the complex legal systems in other countries.
Firms like Euler Hermes will provide the expertise to help ensure that you deal with reputable customers in the right markets and establish reasonable credit limits to avoid or minimize non-payment of commercial debt.
As with any insurance policy, make sure you read the contract carefully and understand what is and isn’t covered. We often find that clients believe they are following proper procedures and meeting obligations, only to discover that they overlooked critical details.
By providing the assurance that your invoices will be paid even if your customers default, credit insurance is critical to protecting your cash flow. This risk management tool will give you greater confidence in extending credit to current customers and pursuing new, larger customers. Ultimately, it gives you freedom to safely explore and develop new markets and grow your business profitably.
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Summit Financial Resources specializes in working capital financing for small to medium-sized businesses that need increased cash flow. We provide working capital financing through invoice factoring, asset-based lending, inventory lending, and equipment financing.