Selling on open account always involves the risk of nonpayment. Always. Yet, the assumed outcome of all B2B commerce is that you will get paid.
With open-account transactions, you, the seller, assume all of the risk, and your customers bear none of the risk.
Most vendors take steps to mitigate the risk of nonpayment, including:
Trade credit insurance sits behind the scene, always protecting your open account shipments. In the event of default, the credit insurer becomes your active partner, paying you. Simple as that.
Sales on open account terms comprise the vast majority of B2B payments for products and services throughout the US. For most businesses, the decision to sell on open account is one they must confront at some point in their lifecycle. Most do it because their customers expect it.
Both slow and prompt payers are common, and both types are often your best clients.
“However beautiful the strategy, you should occasionally look at the results.”—Sir Winston Churchill
Business credit insurance protects a critical part of your customer base. Most companies worry at the catastrophic extremes of their aging—large exposures to known risks, unfamiliar industries, new geographic regions. Here is something flawed, as it ignores that which sustains: the vast numbers of small and mid-sized enterprises that regularly buy.
Your critical vendors may expect prompt payment from you, while your large customers demand extended terms. The challenge for every B2B enterprise is marginalizing the lag between payments going out of to critical vendors and receiving payments from customers.
Commercial lenders know that past performance is no guaranty of future repayment. Yet, they are highly profitable, because lenders routinely hedge against the future risk of every borrower, through interest rate adjustment and collateralization.
The business borrowing relationship is oftentimes complex. Owners are motivated by the promise of reduced rates and fees, but for companies in need of short-term working capital, the availability of funds trumps price, and the owner feels subordinate. Accounts receivable insurance increases your borrowing capacity and brings balance to the relationship.
Most high-growth companies with tight cash flow must borrow, yet decisions to enter new markets are resource-intensive and time-consuming. Accessing working capital beforehand is the wisest choice—especially for startups—but it is a rarity. Companies often fail in their first three years due to lack of working capital in sufficient quantities at acceptable rates. Orders alone do not equate to success, and the underfunded business can swiftly erode in spite of increased volume.
In my years of dealing with business owners, many businesses first line up vendors and orders, and then explore funding:
Sooner or later everyone needs an expert.
Credit insurance, with a proven carrier, can protect your business, guide you through the storms, and rescue you if and when the need arises.
Take, for instance, my recent attempt to hike to the top of Mount Rainier with my friends. Due to us having little or no prior experience, the first thing we did was hire a company that specializes in guiding up Mount Rainier, a second generation company with over 100 years
