What is credit insurance?
Credit insurance is a type of insurance policy covering an individual’s or organization’s credit, such as a business. This coverage ensures that the insured will not suffer financially if their account receivables go uncollected and they cannot pay for products or services provided to their customers. As with other types of insurances, this protection can either be purchased from an outside provider, provided by the company itself (internal), or both.
Credit insurance policies typically come in two different forms: recovery service and debt default. Recovery service covers the expenses associated with recovering money owed to the insured, such as legal fees and interest charges. Debt default cover acts as security that covers insured parties against unpaid debts resulting from bank loans and commercial mortgages.
What are the benefits of credit insurance?
While there are numerous benefits for small businesses that have account receivables, there are also some significant reasons why companies should consider purchasing this type of coverage. The primary reason is that it can help protect a company’s cash flow by reducing or even eliminating debt-collection costs, which could otherwise go unpaid.