Is credit insurance a waste of money?

I have often been asked if this is the case. Over many years, I have come to the conclusion that providing that you exercise good credit control, then the extra cost of credit insurance is usually not justified.

Why do I say this?

Because credit cover is granted once a year. At that point, the underwriters will cover certain credit worthy accounts. Based on that profile, an annual premium is set. Unfortunately, if any of the companies that were covered on day one (even blue chip accounts) files poor results and their credit rating declines, the underwriters can give you notice that cover will be dropped.

Often the relationship with such customers is long term, or there may be a long term contract in place. So it’s then that you begin to start wondering what you have paid for.
So even if you are credit insuring household name customers to avoid a potentially disastrous bad debt situation, you still may find that you are not covered should they finally go bust!

1 thought on “Is credit insurance a waste of money?

  • In seeking to develop new business relationships within the accountancy profession I read your web site with interest. As someone with 29 years in the credit insurance industry I thought the following may show the positive side of why companies credit insurance benefit from credit insurance.

    How Credit Insurance will benefit a company and what will it mean

    Information.

    To positively and confidently increase business with new and existing customers

    To help avoid high risk customers, both new and existing

    To provide early warning on deteriorating risks

    To continually assess customer’s creditworthiness throughout the year

    Finance.

    Provide protection of the Profit and Loss Account thereby ensuring a company’s business objectives and shareholders funds are not compromised by a large unforeseen customer insolvency.

    Quick replacement of cash, which means minimum disruption to cash flow objectives.

    Enhancement of the company’s credit control and finance functions providing a backup to a currently uninsured area of the business.

    Control.

    Ability to manage high exposures, both short and long term.

    Facilitate early action on deteriorating risks. Prevention is better than cure.

    The people and their responsibilities within the company may change. A credit insurance policy provides structure and a common framework within the business.

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