Today’s tumultuous economy may feel like the best time to consider credit insurance to reduce risk. Unfortunately for B2B businesses, trade credit is difficult to navigate and even more challenging to manage.
Trade credit insurance can protect your business when extending terms; but what B2B businesses really need is a way to mitigate risk while they grow.
Trade credit insurance provides a safety net for organizations in volatile industries or those that derive a majority of their revenue from a small percentage of their portfolio. It is not a catch-all solution for mitigating risk, however.
U.S. insurers have reduced their coverage by 10-15%, figures that could reach 25%, according to some analysts. Reduced coverage isn’t the only hurdle facing B2B businesses relying on trade credit to scale. Since the outbreak of Covid-19, trade credit insurance rates have increased an average of 10%.
With lenders nervous about overextending, it falls on sellers to perform their due diligence to understand and navigate their trade credit insurance contract. Trade credit insurance is complex and unforeseen loopholes could mean you’re not covered when you need it most. For instance, trade credit insurance is usually not available for high-risk accounts and policy limits can restrict recovery. Additionally, there are deductibles and minimum loss thresholds that minimize its usefulness.
Luckily, trade credit insurance isn’t the only option for SMEs looking to mitigate risk while offering payment terms to buyers.
For bolstering their credit strategies, many businesses are finding success outsourcing A/R and credit management with Credit as a Service® (CaaS). CaaS extends risk-free credit and automates A/R under your brand while providing protections against bad debt. MSTS handles the underwriting, credit lines, onboarding, collections, invoicing requirements and more.
CaaS allows B2B businesses to grow their share of wallet from their biggest customers while protecting working capital and mitigating risk. By introducing a frictionless payment process and preferred payment options to your credit management strategy, buyers stay loyal and increase AOV. Watch an on-demand demo to see how CaaS fits into your business plans.