The ability to transfer the risk of financial nonpayment of a business' largest asset to a well-rated credit insurance company opens up several ways to increase revenue. These include the ability to sell more to new and existing customers, increased cash flow, open new markets, provide an alternative to letters of credit and other impediments to sales expansion.
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Trade Credit insurance is a product that can both save a business money and make a business money. The financial savings are not only measured in the reduction in bad debt reserves, which are not tax deductible, while credit insurance premiums are, and the impact that has on a company’s capital position but against the alternatives to insuring your accounts receivables. Two alternatives, self-insurance or factoring, have costs associated with them.
“Slow U.S. Economic Growth Forecasted for 2012” - press release, December 5, 2011, Chicago Fed Economic Symposium, consensus opinion of 27 economists.
“We are below consensus on near-term growth and expect slight deterioration in the unemployment rate” - October 2011 Goldman Sachs White Paper, “The Outlook for the US Economy”
A business’s accounts receivables are generally the largest asset on its balance sheet. It is also, most likely the only asset on the balance sheet that is uninsured. Also the perception of risk/reward is often skewed. A company will pay to insure the return of a $500 smart phone, which if lost is a nuisance but will stand naked on a $500,000 credit risk, which if lost could be catastrophic.
Independent agents and brokers should view credit insurance with both an offensive and defensive strategy. All national and most regional insurance brokerages have internal departments dedicated to trade credit and political risk insurance. With only single digit market penetration these brokers see the upside potential.