Bad debt is categorised as any receivable that is no longer collectable, as the customer is unable to pay the outstanding dues owing to financial issues or bankruptcy. Given that the corporate world is a cut-throat landscape, certain businesses are bound to rise, while certain are bound to fall. In the endeavour of forging new links and expanding their business size, most businesses fall prey to the idea of credit sales. Credit sales is a relationship and business-building tactic, where a business allows its consumers to buy goods without paying upfront. By extending credit, businesses give themselves an opportunity to branch out, gain a competitive edge and increase sales.
However, failing to recover this credit can lead businesses to bear the brunt of fraudulent or insolvent debtors. This can push some ventures out of business or can lead certain businesses to experience serious cash-flow issues. With no funds to pay their employees, utility bills or suppliers, businesses can make the mistake of threatening the very existence of their venture. Thus, owing to space they operate within, businesses need to ensure they are financially protected. In this case, a credit insurance policy for UK based businesses acts as a safety net, protecting their short and long term viability.
What Are The Benefits Of A Credit Insurance Policy?
A credit insurance policy essentially transfers the risk of lending credit to consumers from the business’s shoulder to the insurance company’s shoulder. Protected against customer insolvency, a business gets to nurture customer loyalty, gain leverage during negotiations and keep processes running smoothly. Following are the benefits of a credit insurance policy:
· Improves Cash Flow
Effective management of cash flow is perhaps the most important element for ensuring a venture’s sustainability. A credit insurance policy helps businesses improve their cash flow by reducing the number of days a credit sale can be outstanding. Additionally, if a customer becomes aware of a business’s credit insurance policy, their payment behaviour is more than likely to improve. However, if a consumer becomes insolvent, the credit insurance policy replenishes the business’s cash flow.
· Enhances Sales Volume & Helps Businesses Grow
A credit insurance policy helps businesses identify and evaluate new customers, leading ventures to build reliable relationships. Through expanding the reach of the business, a credit insurance policy lets businesses tap into new markets. Equipped with a database of which consumer is creditworthy and which isn’t, these insurers give businesses a clear understanding of who to network with.
· Assist Long-Term Viability
Not each business is aware of effective credit management. Providing up-to-date business insights and intelligence, an insurer guides businesses regarding the recovery of unpaid debts, ledger management, etc. Such a disciplined approach allows the business to identify their loopholes, ensure compliance with corporate credit policy and monitor accounts receivables for any warning signs.
· Better Lending Terms
If a higher level of funding is what a business seeks, having a credit insurance policy ensures they gain from favourable lending terms. This ease of funding allows businesses to expand their operations, buy equipment or re-finance their pre-existing loan.