Credit Insurance and Accounts Receivable Insurance

Real-World Examples of Credit Insurance in Action

Understanding the nuances of credit insurance is crucial for protecting your business’ financial health. While terms like “insolvency” and “protracted default” might seem like jargon, they represent real-world scenarios that can impact your bottom line.

If you want to learn more, check out our business insurance glossary for definitions of key terms. Understanding the terminology of credit insurance is just the first step. To truly grasp its value, let’s explore how these terms play out in a few hypothetical scenarios:

Insolvency Strikes

Imagine your largest customer, ABC Corp., suddenly shuts down due to bankruptcy. You’re left with $300,000 in unpaid invoices. This is where your credit insurance steps in, covering a significant portion of that loss (depending on your policy’s indemnity percentage) and preventing a major financial setback for your business.

  • Questions to ask yourself: Do you have any customers that account for a large portion of your revenue? What would happen to your cash flow if one of them were to suddenly go bankrupt? Could your business absorb a large unpaid invoice?

Late Payments Become a Pattern

XYZ Ltd., a key account, consistently pays 60 days late despite your agreed-upon 30-day terms. This pattern of protracted default not only disrupts your cash flow but can also negatively impact your business’s ability to meet its own financial obligations. Credit insurance can ensure timely payments, even when clients are habitually late.

  • Questions to ask yourself: Do you have any customers who consistently pay late? Does this affect your ability to pay your own bills on time? Do you have enough cash reserves to cover these late payments?

Political Unrest Disrupts Business

You’ve secured a major export deal with a company in a developing nation. However, unexpected political unrest erupts, leading to trade restrictions and frozen payments. In this scenario, political risk coverage within your credit insurance policy would protect your business from the financial fallout of these geopolitical events.

  • Questions to ask yourself: Do you export goods or services to countries with political instability? Are you concerned about potential disruptions to trade or payment due to political events? Could your business survive if payments from overseas clients were delayed or canceled?

Expanding Your Customer Base

You’re excited to onboard a new, high-potential customer, but they have a limited credit history. To mitigate the risk, your credit insurer assesses their financial standing and assigns a credit limit of $120,000. This means your policy will cover losses up to that amount if the new customer fails to pay.

  • Questions to ask yourself: Are you considering offering credit to new customers with limited credit history? Are you comfortable with the potential risk of non-payment? Do you have a process in place to assess the creditworthiness of new customers?

Ready to protect your business from the unexpected? Use our online credit insurance tools to assess your risk and explore coverage options. You’ll find more resources to understand your policy, assess your risks, and make informed decisions on the online learning portal. And if you need personalized guidance, our experts are just a phone call away: +1 (813) 288-8680.