Economic storm clouds are everywhere, and any questions about recession tend to focus on the extent of damage expected, rather than if we’re in a downturn or not.
If you’re an investor, there’s plenty of advice to be found on where to put your money while the world weathers what’s ahead. If you’re a business that extends payment terms to customers, we’d suggest considering trade credit insurance.
Indeed, this coverage may be one of the best risk management strategies of the moment.
Trade credit insurance covers your business against losses caused by the inability to collect payment from a customer for a variety of reasons, including a client’s bankruptcy, default, and even acts of war that prevent contract performance.
Few companies carry credit coverage, but as the recession takes a bite out of the economy, the odds of doing business with someone who might go out of business will certainly go higher.
This type of coverage also makes sense for any company doing business overseas, because credit insurance can protect you against political events in other countries. That includes trade embargoes and changes in import and export regulations.
Companies that are heavily dependent on revenues from just a few customers also should consider credit insurance.
There’s a deductible in most credit policies that will be based in part on your customers’ credit histories. These policies also typically include a coinsurance percentage over and above the deductible. Why? Because that’s how the insurer can feel good about the idea that you will continue to keep a close eye on the credit-worthiness of your clients.
These policies also can help reduce your bad-debt reserves and can help you gain greater access to bank financing, sometimes at more favorable rates. Why?
Because knowing that your receivables are insured, lenders may be encouraged to offer increased credit limits and better terms.
In other words, trade credit policies not only can protect your bottom line, but help you grow it as well.
That is, needless to say, always a good thing, whether the economy is growing or not.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. An employee-owned organization, we’ve been providing our clients with the confidence to face whatever lies ahead for more than 100 years. For more information, contact us online or call 877-440-3304.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.