Understanding Credit Insurance and When to Use It

Credit insurance is a valuable tool that protects businesses against the risk of customer default. For credit controllers, understanding how it works helps in making informed recommendations to management.

What is Credit Insurance?
Credit insurance is a policy that covers losses when customers fail to pay their debts due to insolvency, bankruptcy, or protracted default.

Benefits:

• Provides financial protection against bad debts.
• Enhances confidence in extending credit to new markets.
• Can improve financing options, as banks view insured receivables more favorably.

When to Use Credit Insurance:

• When dealing with high-value accounts.
• When expanding into new or unfamiliar markets.
• In industries with higher levels of payment risk.

Considerations:
Premiums can be expensive, and not all accounts may be insurable. Credit insurance should complement, not replace, strong credit control practices.