Credit insurance, also known as trade credit insurance, debtor insurance or business credit insurance, protects your business against non-payment. If your business has a policy and your customer fails to pay up the insurer will pay the bill (or the amount covered by the policy).
Depending on the policy, you can select the accounts you want insured, the portion you want covered and how many days a bill must be overdue before the policy kicks in. You will pay a monthly premium for this protection which is based on the creditworthiness of the customer and the size of the credit account they hold with your business.
While credit insurance may seem like a luxury expense, it's worthwhile weighing the costs against the potential benefits it can bring to your business. It's also important to remember that having an insurance policy isn't a substitute for conducting your own credit and collections activities. You should still conduct a credit check before extending credit to your customers.
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