In today’s business landscape, credit insurance helps to protect your business against the unexpected commercial and political risks that exist in most economic sectors. Credit insurance on the top of your credit management software is a valuable protection that will give you confidence while managing your customers. The first line of defence is better information and understanding the risk, some of which we would be closely examining. But first, let’s take a look at what exactly is credit insurance and how your company can leverage the most out of it.
Credit insurance is a risk management tool that insures suppliers against buyer non-payment. There can be a variety of reasons why your buyer can’t pay within the payment term. The reasons can be broadly distributed into two categories viz: Commercial and Political reasons.
Some commercial reasons include:
Some political reasons include:
Credit Insurance prevents businesses from bad debts and customer insolvency. The products or services are sold on credit by the seller whose payments are being insured by the Credit Insurance Solution.
Let’s learn about the key aspects that need to be kept in mind before choosing the right policy:
Once all these basic points are taken into account, choosing the right insurance policy becomes hassle-free. Let’s look at some of them:
Since the implementation of the credit insurance solution can be complicated, here are the 6 steps which will guide you through the process.
Let’s have a look at the blueprint before getting into the details:
It is necessary for the broker to understand your company and terms. Once they understand your customers, industry, sales, and payment terms, they can easily negotiate the best combination of cost and cover for your business.
They will be able to:
Following are the key policy characteristics to evaluate:
A relationship is always an essential element in business whether it is with a customer or collaborators such as those with the insurer.
There are some basic methods to implement and build a stronger relationship with the insurer:
Insurance policies have numerous terms and conditions which can sometimes go against your company policies. Hence, it is very necessary for both parties to have a thorough review and compliance with the set insurance policies.
Once the insurance policy is issued, the insured has three basic duties:
Pricing is complex and often not set in stone. Therefore, it is necessary to review the policy statements carefully before fixing a deal. The overall insurance pricing is based on your risk level, premium services, and broker’s fees. Your risks are measured based on the business industry, customer ratings, loss history, and geographical location.
Make sure that you also ask about any brokers’ fees that will be added to your premium and review fixed costs which could be as little as $150 – $500 per transaction or could go up to a thousand dollars.
In the business world, there is a high risk of fraud and deception; henceforth while making partnerships with the insurer, ensure to make a proper background check and contract signing of all the clauses.
If the company relies totally on the insurer for its credit risk analytics, the insurer might decline ‘good’ companies which will result in the loss of both perfectly good sales and leads to suffering higher claims. Furthermore, it might increase future premiums. It could be particularly important if sales are industry-specific, in which case the company might have a better knowledge of the industry than the insurer.
The company should have efficient communication channels between the Broker and the Insurer. However, the company should be ready with a proper contingency plan if unfortunate circumstances arise.
“I would say that the key benefits is the simplicity. Once you have the insurance program in place in your company, it’s pretty easy to get the coverage for your sellers.”
-Santiago Tomasi | Senior Credit Manager, The Mosaic Company
Key benefits of Credit Insurance:
Go through the following chart for detailed benefits:
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HighRadius Credit Software automates the credit management process, enabling credit managers to make highly-accurate credit decisions 2X faster and enable faster customer onboarding with 4 primary components: configurable online credit application, customizable credit scoring engines, credit agency data aggregation engine, and collaborative credit management workflow. Along with that, there are a lot of key features that should definitely be explored some of which are online credit application, credit information aggregation, automated credit scoring & risk assessment, credit management workflows, approval workflows, and automated bank & trade reference checks. The result is faster customer onboarding, better internal collaboration, higher customer satisfaction, more targeted periodic reviews, and lower credit risk across the company’s customer portfolio.