Why are most companies in business? As part of many reasons, one of the top is most likely to be “make money or profit.” A reality of business is the necessity of cash; if your company isn’t receiving revenue from goods & service, it’s likely the business will cease to exist over a short period of time.
Liquidity and cash are the lifeblood of businesses, with accounts receivables one of the largest asset classes on a company’s balance sheet (in some cases, 40% or more). As one of the largest assets on the books, it is rare to find this large, important asset insured. Why is that?
Insurance is traditionally purchased to protect physical assets- buildings, contents and vehicles. Rarely has a company considered or even heard of the ability to protect the future cash owed to the. Businesses may consider purchasing credit insurance to protect their most valuable assets- cash.
Trade/Credit insurance protects accounts receivables from bad debt loss due to insolvency, slow pay, or political risk events. Businesses and advisors should take a careful look at their exposures and consider credit insurance as a method to mitigate risk of loss to money owed to the business.
The majority of businesses purchase credit insurance to help them with sales expansion and obtain better financing terms with banks. The ability to negotiate more favorable rates and more loan values with banks are greatly influenced by the protection of insurance on the accounts receivable. The insurance carrier also provides an outsourced risk management view of future cash, providing information about the payment ability of customers of the business. The insurance companies have data on millions of company across the world, helping businesses make better decisions on who they offer credit to and when to allow flexibility in payments.
2008 brought us cash for clunkers; 2016 could bring businesses the option to have cash for future cash?
by Brian Pilarski