Many companies might be put off taking out credit insurance. However, credit management is not just about dealing with situations when they go wrong. Taking control of your business’ finances can have positive effects on your bottom line.
We are still in the middle of a fluctuating economy, where even big name companies are going under. Therefore, the role that credit insurance and effective credit management can play in your business’ success has become even more important. When you start working with a new client, or even those you have done business with for years, there is always the risk that they might not pay for the goods.
What Is Credit Insurance?
In simple terms, credit insurance will cover you against any losses if one of your customers becomes insolvent or fails to pay their invoices. With a policy you can either choose to cover all your debtors or pick specific customers based on their history. The best use of credit insurance is for it to work as part of a wider business credit management policy. This will enable you to better manage your liability to credit risk and in the long run could enable you to significantly grow the business.
Effective Financial Management
One of the keys to better business credit management is to build long-term relationships with your customers. If you work well together then they are more likely to pay your invoices on time and give you warning of any late payments or financial difficulties.
Managing your credit risk is all about being one step ahead of your debtors. If you are considering taking on a new customer, then you should first analyse their credit history and decide on the level of credit they are allowed. Successfully managing the amount of debt any one company can get into means that you are not leaving yourself open to too much risk. However, it is not just new customers that can have problems. Clients that you have worked successfully with for years can still encounter financial problems, so as part of your credit management you should regularly monitor their status.
Understanding the Market
You are the best person to know exactly what is going on in your own market. As part of your business, you work within it every day and know exactly who the major players are. Working alongside a credit management specialist, you can become aware of any customers who are encountering struggles. This will allow you to take early intervention, such as lowering their credit limit, to reduce your openness to risk.
Every business person knows that we are working within tough conditions and that you can never completely cut yourself off from the risk of bankruptcies. However, if you look closely at your credit management facilities and keep an eye on where customers are heading, you are less likely to have to claim on your credit insurance, keeping your premiums lower. Maintaining low debtor levels and managing your cash flow effectively will lead to a more profitable business that is in a better position to grow.
Kevin Maddox writes regularly on business financial services for a range of finance and economic websites and blogs. He previously worked within the business credit management industry and understands the needs of businesses in this tough economic climate.
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