Five reasons to consider credit insurance before 1 July

The economic shifts affecting Australia, new trade deals, and fluctuating interest rates mean the financial year 2017 will be an interesting one for small businesses.

With the new financial year fast approaching, it’s time to put strategies in place that will bolster your business’s bottom line. Credit insurance can play a key role in assuring cashflow, and is an important first step to preparing for the coming year.

There are five reasons to get credit insurance in order before the end of June:

  1. Manage cashflow for peace of mind

Healthy cashflow is a sign of a healthy business. If your cashflow is interrupted, it could mean that your staff can’t be paid, new stock can’t be purchased, and your business may grind to a halt. There are a number of things that can affect the cashflow of your businesses. One of the biggest is non-payment or late-payment by customers for the goods and services you provide. Other factors might include market pressures, such as diminished demand, heightened supply, or a soft economic climate.

While most of the factors that contribute to cashflow interruptions may be out of your hands, taking on credit insurance means you have a safety net that lets you trade confidently in the face of slow payment.

  1. Flexible payment terms

Credit insurance can provide a financial buffer zone if a customer is unable or unwilling to pay outstanding invoices. This means that your business can be more flexible with terms of trade and extend the payment period if needed.

  1. Increase credit lines

Credit insurance can enhance the value of a business’s debtor portfolio, meaning that trade financiers are more likely to offer increased lines of credit. This can lower the cost of borrowing and broaden the scope of the business.

  1. Reduce exposure to risks

Offices and equipment are often the first assets businesses insure. However, one of the largest assets on the balance sheet, trade receivables, is commonly left uninsured and vulnerable to risk. The average business receivables asset makes up about 30% to 40% of the ledger, meaning that without appropriate credit insurance, your business is exposed to significant risks.

  1. Gain insight

A good trade credit insurer will add value to your business by acting as your eyes and ears on the ground, checking that prospective customers’ stability, creditworthiness, and market reputations meet the required standards. This can give your business more valuable insight than a cursory review may reveal, and help you be better informed to make strategic business decisions.

Mark Hoppe, managing director, ANZ, Atradius

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