Using Credit Insurance to Mitigate Risk and Grow Your Business

Using Credit Insurance to Mitigate Risk and Grow Your Business

March 24, 2022

When creating a strategic plan for your organization’s future, it’s important to know which businesses you can trust to pay you. Accounts receivable are arguably a company’s most important—and underestimated—asset. When allowing customers to pay on credit, there’s always an inherent risk that your company might not get paid. However, this risk includes economic forces out of your control that could impact the future growth of your business.

To help mitigate that risk, credit insurance can help you grow your business without the uncertainty that comes with working with new customers. Many businesses shy away from trade credit insurance because they don’t understand where it fits into your revenue growth.

Understanding How it Works

IGS trade credit insurance pricing is based on several different factors, but is most easily understood when looking at a specific customer example:

Let’s say that Company A has a new customer that wants to purchase their products 8 times per year. Each of those 8 transactions are worth $100,000, totalling $800,000 worth of products purchased. If Company A has a 10% profit margin, that’s an additional $80,000 of revenue per year for the organization.

However, taking on a new customer brings risk to the organization. There’s always a chance that the new customer won’t pay their invoices on time, go bankrupt, or they might not even pay at all. With credit insurance, you can accept that new customer and agree to terms that fit both organization’s needs while having the peace of mind that you’ll be paid no matter what through your credit insurance.

So, what does something like this cost?

The average policy has a basis point of .0012%. So, if you take the value of an $800,000 customer times .0012%, the cost of insuring that customer for an entire year is $960, or $120 per transaction.

What Can You Do When Risk is Lowered and Your Receivables are Protected?

Expand Internationally

Establishing your business in a foreign market provides the opportunity to expand your purchasing power while also diversifying your assets. Foreign markets offer investment opportunities, global connections and new resources that may not exist in the US.

Grow Into a New Market

Develop new resources, a higher level of brand awareness, and if expanding into an area without competitors – enjoy the first-mover advantage.

Competitive Advantage

With a higher credit limit, your business can take on new customers with longer payment terms, and flexible deposits. Speed up your sales cycle and set yourself apart from other companies.

Insure Your Customers in Minutes with Quick Cover

In addition to the benefits that credit insurance brings as a whole, IGS is committed to making the process of insuring your costumes simple. If you’re new to IGS, you’ll be approved for an account within 2-3 business days and can start insuring your customers immediately. For existing customers, we offer a feature called Quick Cover.

Quick Cover puts the decision making power in the hands of your organization or credit team. This feature enables your organization to automatically approve a new customer for anywhere between $20,000 to $100,000 of coverage without needing IGS approval, allowing you to make decisions quickly when it comes to approving and doing business with new customers. In addition to this, it also speeds up your business’s sales cycle while leaving with the confidence that you will be paid. The age old saying rings true—time is money, and a shorter sales cycle can lead to more opportunities, larger customer reach and significant growth for your business.

What if I Didn’t Use Credit Insurance?

New customers bring risk, regardless of if they are buying from you or a competitor. Credit insurance allows you to stay a step ahead of your competitors and simplify your business relationships. Your competitors might be requiring a deposit to accept a new customer to mitigate the risk they bring. Or, maybe you mitigate this risk by allowing them to pay by credit card—except you get stuck with the 1 or 2% transaction fees (in our example, that 2% credit card transaction fee would be $16,000!).

With credit insurance, you don’t have to require a deposit or allow them to pay on credit card, because you’re already insured for the receivables you’re owed after doing business with them—ultimately making your organization easier to do business with for everyone involved.