Commercial Receivables Insurance - An Effective Management Tool For Improved And Lower Cost Access To Business Capital And Better Receivables Control
Success Through Risk Management
Every business owner seeks to minimize the financial risks inherent in his business operations and available profit opportunities. Every business capital source in fact will not only review your company for the degree of management success in this area, but in some cases will absolutely require it as a condition of financing. Examples abound - key-man life insurance, liability and comprehensive type coverages for all hard assets, equipment, autos, and fixtures, surety and bonding for key employees, and life insurance to the extent of any mortgage indebtedness.
Interestingly, despite its rank as probably the number one cause and/or notable area for business financial impairment and even loss, many companies are simply aware there is a straight forward means to eliminate the risks, increase your borrowing power with financial institutions and at the same time create increased sales and profits - commercial receivable insurance.
Typically, for qualified firms, such insurance insures against two major calamities:
- Slow pay and/or
- No pay.
Having a fast growth company, solid market niche and even outstanding management is to no avail if there is insufficient "cash flow" support and as well, there is not timely receipt of the revenues from the firm's sales. Carrying 90 days or more in a receivables base from a significant customer or group customers can often bring profits to the floor and put a firm in a serious cash flow crisis. Even worse is the major client or clients that experience financial problems and simply cease payments altogether (tax liens, bankruptcy, etc.).
Properly structured and given a solid economic base for coverage, commercial receivable insurance can eliminate these risks entirely.
First, the risk is minimized by prevention - let the credit insurance become your entire credit department. The insurance company is will have far more resources at its disposal to comprehensively to investigate new or existing clients for credit terms than your company and at far less costs (full time employees), etc.). With the advantage of solid credit information, management has the ongoing tools to avoid just these types of credit problems, as well increase sales and profit opportunities. In effect, sound credit information pays for itself. It allows your firm to grant credit terms secure in the knowledge that the credit information is reliable and the risk is in any case covered entirely. Second, if there is a "slow pay" situation which is going the wrong direction, usually the account (depending on the policy type and conditions) is turned over to the insurance company for collection - again solid professionals in this area and better more experience in collecting the revenues and still maintaining customer satisfaction than you. In the end, if it is not collected, the firm collects 100 cents on the dollar under the policy. Third, assuming an outright failure by the customer(s) to pay due to any number of possible unexpected customer problems (insolvency, bankruptcy, etc.), simply file a claim and again the firm is paid 100 cents on the dollar.
Fourth, commercial receivable insurance coverages should also translate into immediate lower costs of business financing for the firm as well as better and greater access to capital to expand the business operations. Quite simply, credit enhancement through receivable insurance lowers the specific and overall risks to any financial institution in extending capital to your company.
For the intelligent owner or CEO wishing to advance the company to its maximum growth and profit opportunities, commercial receivable insurance is a very cost effective method to minimize credit problems, provide confidence for expanded sales opportunities with attendant profit increases, and as well, gain greater access to and lower costs for business financing support. There is very quieting and positive impact with the absolute knowledge that "you will always be paid for what you sell" and that the cost of growth can actually decrease.
Immediate benefits include:
- Elimination of expensive, non-deductible bad debt reserves with insurance costs fully deductible to the company;
- With on-going credit investigations on all key clients (past, present, or future), the company has access to more reliable and better management tools for its sales strategies and receivable controls (prevention and minimizing losses);
- Where available through your insurer, better coordinated and more successful collection efforts by seasoned professionals;
- More reliable information and greater confidence for doing business in overseas markets;
- Added confidence to allowing immediate increases in customer sales and even expanding into new market-customer bases; and
- Adds certainty to cash flow and profit forecasts, which automatically lowers financing costs to the company with attendant greater leverage opportunities.
Business success has been described as anticipating cost effective solutions which accelerate your goals. Evaluating how your firm might minimize receivable risks and/or share them through insurance coverages is a suggested strategy for immediate review.
Copyright/W. Wollesen/Execunet