We are often asked by businesses who are looking to protect themselves from bad debt, whether it is better to build up a cash reserve or invest in credit insurance. Both require funds to be set aside to protect the business if a customer defaults on payment or becomes insolvent. However, there are other factors to consider, namely:
- Timing of a bad debt
- Opportunity to save
- Information on debtors
- Confidence to grow your business
Timing of bad debt
A bad debt can occur at any time and could result in a sizeable fund being built up and set aside to ensure
that the business can cope. This money could have rather been put to a more constructive use such as new investment or growth strategies. A credit insurance policy can put in the right level of protection straight away.
Opportunity to save
There is never a great time to save and if there are funds available they will often be used for operational expenses in the hope that customers remain honourable and solvent. In contrast, a modest monthly credit insurance premium is similar to a ‘forced’ saving that provides you with sizeable protection, and can be easily budgeted for.
Information on debtors
The only information you have on your customers is your trading history with them. While they might be paying you timeously they may be struggling with honouring their commitments to other suppliers. With a credit insurance policy you gain access to the credit insurer’s information which is analysed, monitored and updated on a regular basis by a host of professionals.
Confidence to grow your business
During these uncertain economic times and with some insurers expecting insolvencies to increase by 10% in 2016, going after new business comes with its risks. However, by ensuring you have strong internal controls and complement these with some form of protection, like credit insurance, you are more likely to succeed where your competitors have faltered.
If you would like to minimise the risk of bad debt for your business and have aspirations for it to take on new business and grow, credit insurance could indeed help you turn your goals into reality. For more information contact the team at KPL & Associates on t. 031 5642 135.