Any company can protect its business against any financial consequences due to unpaid invoices with the help of a credit insurance policy. No matter whatever credit terms that you set for your clients, there can always be a certain risk whether they will pay your bill late, or even not pay at all.
As per the data available with us, almost 47% of invoices in Australia are paid late, and which is particularly catastrophic for any medium businesses that may be dealing with a good number of invoices.
Those who are at the SME level generally may operate on tighter budgets and hence have very little room in terms of their cash flow, hence such trade credit insurance can be very useful for them. Niche Trade Credit is a well-known broker in Australia that deals with such insurance policies.
Any delayed payments can always compromise your cash flow and totally affect your business and in the worst-case scenario even it may halt. Just imagine what can happen to you when your debtor will default on their bill or they file for bankruptcy?
How much will trade credit insurance cost?
Your cost of taking out any trade credit insurance may vary depending on a number of factors. These include:
- The type of industry you are doing business
- Your history of bad debts so far
- The quality of your present internal credit procedures
- Credit-worthiness of your customers
- The amount of insurance cover that you need
As a ball-park figure, to give you an idea of what can be the cost of any trade credit insurance, most of the policies may range between 0.1 – 0.3 cents per dollar. Therefore, it would mean that any business with an annual turnover of say $10m per year, may pay a possible premium of $20k on average.
Although while taking into account the free collection fees that are associated with any trade credit insurance policy, often it can outweigh the cost of the total premium. The cost of your policy of course will be entitled to a certain amount of tax deduction as well.
Therefore, for any businesses that may be at high risk of any bad debts, paying for the cost of any credit insurance policy will make a very smart business sense.
Those businesses who may not be interested to have a cover of such Trade Credit Insurance can avail themselves of another option by hiring any professional company who will help them with proper risk management.
Such a company will help to audit your businesses and also help you by monitoring your debtors for any adverse information and also do credit checks for any new or existing accounts. However, they will also charge certain annual fees.
Their service may also include gathering various market intelligence about your debtors with the help of their sources and keep you informed about your customer’s financial health.
However, there will always be certain risks while doing business. On the other hand, if your business remains insured then you can reduce your risks significantly if your debtors fail to make payments.