“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.
Short-term growth depends on reliable capital streams coming from one place on your balance sheet—your accounts receivable. The disruption of customer repayment has the power to immediately strangle cashflow, and ultimately destroy your business. Hedging against the disruption of future payments is necessary. Knowledge of your customers and their payment history alone does not provide this hedge.
Accounts receivable insurance gives you a hedge against the risk of nonpayment, at a nominal cost. It pays you when your customers do not. Simple as that. The best credit manager in the world is incapable of making that promise. A credit insurance contract does exactly that.
Unlike any insurance in the world, trade credit insurance strengthens your business plan, and is part of every successful one. Having decided the markets you will enter, targeted key customers, ramped up sales, and orders start coming, getting paid should not be assumed as a certainty simply because that is how business just happens.
Your customers regularly paying you does not just happen. Slow payments happen, collection events happen, repayment plans happen, lawsuits in pursuit of payment happen, and nonpayment happens.
Hedging against the likelihood of nonpayment—by acquiring an accounts receivable insurance policy—should be seriously considered, and it is always a smart bet.