If bad debt protection does not fit a company’s needs, there are alternatives. The best alternative to bad debt protection insurance is trade credit insurance – also known as bad debt insurance or accounts receivable insurance – which provides coverage for a wide range of bad debt-related losses while supporting businesses to manage their accounts receivable more effectively.
The best trade credit insurance offers predictive protection by providing credit data and intelligence designed to help companies improve their credit-related decision-making and credit management. The goal is to prevent losses from bad debt. Since no company can avoid bad debt entirely, the trade credit insurance policy is in place to cover any losses that occur even after the company and the insurer have taken steps to minimise losses.
If we compare bad debt protection vs credit insurance: while bad debt protection only covers “losses from customer insolvency,” trade credit insurance also covers “protracted default,” which is when a solvent company is late with its payment or simply fails to pay at all.
A large specialty trade credit insurer can also tailor a policy to cover many other eventualities, including:
- Unpaid invoices as a result of natural disaster.
- Unpaid invoices as a result of political risk (inconvertibility, government intervention and war/civil disruption); for example, when doing business in other countries.
- Losses that occur because of problems before goods are shipped; for example, this could involve custom-produced goods that cannot be sold to another customer.
- Losses occurring after shipment by a contracted third party.
- Losses occurring when selling on consignment terms.
Many companies change their approach to bad debt management when some of their major clients default on their bills, leaving them facing considerable losses. They usually spend considerable staff time and resources trying to collect on the bad debts with no success. By purchasing trade credit insurance, they not only protect themselves against future losses from bad debt, but also leverage that protection as it helps them pursue their growth with new customers.