What is Credit Insurance

Credit insurance is one of the mandatory insurance for those business organizations who operate with credit payments. Credit insurance companies provide high security for companies operations to free from risks.

Credit insurer provides insurance coverage for unpaid goods receivable and secure non-payment risk of their customers.

Functions of Credit Insurance

Insurance policy plays an important role for every organization that operates with exports and imports as it secure and make it to success of their operations

  1. It support organizations in their business operations from covering that damage caused by nonpayment of buyers.
  2. Credit insurance enables entrepreneurs to focus on better services, development of products, attracting new customers and satisfying existing customers.
  3. It protects companies against credit risk and enables better business, high opportunities with growth and development.
  4. It increases trade and exchange with the positive impact of the gross domestic product.

Why obtain credit insurance policy

Many business companies sell their goods and services for their customers on credit payment, in order to increase sales, attract existing and new customer incompetency market. If the customers fail to pay the credit amount it leads to bad debts and loss to the company. So in order to cover those bad debts, companies are required to take insurance coverage for those credit payments.

Advantage of Credit insurance

Credit insurance acts as financial instruments to protect the payment risk of the buyers. The main advantages of credit insurance are as follows.

  • It enables high purchasing power with safe credit of the buyers and increases their sales to the existing and new buyers in domestic and abroad.
  • It creates high economic growth and financial security.

Buyers insurance limits

The insurance for insured is limited depending on several conditions such as.

  • Based on payment records whether the buyer is good player or bad debtor payer
  • Credit payments i.e days between invoice date and due date of payment.
  • Credit limit provides to the customer based on the company policies.

The formula of credit insurance limit for a particular buyer as follows

credit insurance limit formula

So it is mandatory for a business organization to have a credit insurance in order cover those bad debts, credit risks.