Does Your Business Need Credit (Receivables) Insurance?

Posted on: 12 July 2016

So many insurances, so many outgoings. It's common to want to cut down on the costs as much as possible, and that will often mean looking at insurances and deciding whether to get them or not. When it comes to a business, credit (receivables) insurance is just one type to consider. Does your business really need it? 

What Is Receivables Insurance?

Before you even start considering it, you need to know what this type of policy will entail. The insurance is known by credit insurance or receivables insurance, so the two are interchangeable. According to Investopedia, it helps to protect against unpaid invoices where a client goes bankrupt or just neglects to pay for services.

Protect Against Unpaid Funds

The benefit of protecting you against unpaid invoices will help you keep your business going. Having one client not pay will mess up your cash flow and could lead to financial trouble for yourself. Customers and clients come with risks, but you don't want to turn people away or stipulate all invoices must be paid upfront. The customers want protection against scam businesses, after all.

It May Be a Struggle

Due to the nature of the insurance, the premiums can be high. This is especially the case if you have a history of late-paying clients or you do business internationally. There may also be a credit limit applied per customer, meaning that you don't get the full amount you are due. You could pass this cost onto your consumers, but you then run the risk of people not willing to pay your going rate.

The outgoings will be classed as a business expense for tax purposes. It will mean that you can use it to reduce the amount of profit you make that you pay tax on.

Is It Right for You?

Now, it's up to you to decide. If you work in a high-risk business, you may find the premiums high, but worthwhile. This is especially the case if you have a history of late-paying clients or customers. Another recession could hit at anytime, meaning businesses and individuals struggle financially. Having the protection in place will mean the same thing doesn't happen to you.

Those who work with the government and have non-open accounts, the insurance isn't usually necessary. This type of insurance is for those in the business-to-business sector.  

There are lots of different ways to handle late- or non-paying clients. Receivables insurance is just one option available and it is up to you whether to take it.

Contact a local provider, such as Western Reserve Group, for further assistance.