Until very recently, one of the biggest supermarket chains in the region was invisible but of late, their shelves are empty of the attractive imported stuff which the middle class enjoyed stocking at their homes. What happened? Suppose you were their supplier who over the years had been paid regularly within the credit period but you now have not been able to collect debts over 365 days? What if they were your biggest buyers ? How do you protect your balance sheet or receivables? Suppose you had supplied road construction material or equipment to the Government who later ran into financial challenges?
If you had a Trade Credit Insurance you would still be in good business since the insurer would have paid your unsettled invoices. So how does this unique insurance work?
Trade credit insurance protects your business against both commercial and political risks that are beyond your control. It improves the quality of your bottom line and helps you to grow profitably, minimizing the risk of sudden or unexpected customer insolvency. Credit insurance gives you the confidence to extend credit to new customers and also improves access to funding, often at more competitive rates. Trade credit insurance is for short-term account receivables i.e. those due within 12 months.
How does credit insurance work?
Credit insurance protects your company against the failure of your customers to pay their trade credit debts owed to you. These debts can arise as a result of a customer becoming insolvent or failing to pay within agreed terms and conditions (i.e. “protracted default”).
How it works is simple: A Koolridge partner office monitors the financial performance and well-being of your customers. Each of these customers will be allocated a grade that reflects the health of their activity and the way they conduct business.
Based on this risk assessment, each of your buyers is then granted a specific credit limit up to which you, the insured, can trade and be able to claim should something go wrong. This limit can be revised upward or downward as new information becomes available.
Throughout the lifetime of the policy, our partner will inform you of any changes that might impact the financial health of your buyers and their ability to pay you for goods or services you have delivered. In the event that your buyer cannot or will not pay you, you will be insured and indemnified up to the limit of your policy.
The 4 reasons why credit insurance improves the profitability of your business
Trade receivables can represent up to a third of the total assets on a company’s balance sheet. Managing your trade receivables effectively therefore plays a key role in:
Delivering comprehensive protection against the risk of insolvency
Enhancing your customer relationships
Improving banking relationships and access to finance
Supporting sales expansion
Credit Insurance Example
If your company’s profit margin is 5% and one of your buyers defaults on a debt of Kshs 10,000,000, then you will have to produce additional sales worth Kshs 200,000,000 to make up for lost profits. Non-payments weaken your company and lower its investment capacity. A credit insurance policy helps manage your account receivables and mitigate your losses in the event of non-payment.