If you're a business that sells goods and services on credit terms, a substantial percentage of your working capital is probably tied up waiting for your customers to pay their account (accounts receivable).
In the event the account is not paid and ends up as a bad debt it is much more than simply a loss of money you were due to receive. The truth is you can never make up for the cost of a bad debt. The impact is immediate, it can put stress on cash flow and will affect your profitability. For most businesses the value of the money owed to you (accounts receivable) is one of the largest assets and yet often uninsured.
This insurance policy can provide a range of benefits.
- Sales expansion If your bad debts (receivables) are insured you can safely sell more goods and services to existing or new customers that may have otherwise been too risky.
- Improving your financing terms In some instances banks and other lenders will lend more capital or provide better funding rates if your bad debts (receivables) are insured.
- Reduce your bad debt allocation Provides indemnity from customers non-payment, thus freeing up the companies cash.