I frequently work with staffing companies who are seeking ways to safeguard their business against failure of a client to pay their outstanding receivables. One insurance product that I highly recommend for staffing companies is trade credit insurance. This type of insurance is particularly important in today’s uncertain economic climate, where businesses are vulnerable to a range of risks, including potential economic downturns, banking failures, and supply chain disruptions.
In this article, I will explain what trade credit insurance is, why staffing companies should consider purchasing it, and how it can protect their business against financial losses in the face of these risks.
Trade credit insurance is a type of insurance policy that protects businesses from the risk of non-payment by their customers as a result of bankruptcy or delayed payment. For staffing companies, this is particularly important as they often have large account receivable balances.
There are several reasons why staffing companies should consider purchasing trade credit insurance:
1. Protects Against Non-Payment: Trade credit insurance can help protect staffing companies against losses due to non-payment by their clients. If a client goes bankrupt or fails to pay their bills, the insurance policy can provide compensation for the lost revenue.
2. Improves Cash Flow: By reducing the risk of non-payment, trade credit insurance can help staffing companies to improve their cash flow. This can be especially important for small and medium-sized businesses that may not have the financial reserves to absorb losses from non-payment.
3. Manage Client Approval: By prequalifying clients through credit checks and other credit management practices with their insurance company, a business can identify which customers are most likely to pay their bills on time and which ones may pose a higher risk of delayed or non-payment.
4. Superior Banking Terms: Trade credit insurance can help reduce the risk of non-payment, which can make lenders more willing to extend credit to a business. This increased confidence can lead to lower interest rates, longer payment terms, and higher credit limits.
5. Facilitates Growth: With trade credit insurance in place, staffing companies can be more confident in extending credit to new clients. This can help facilitate growth by enabling the company to take on more business without increasing its financial risk.
6. Provides Peace of Mind: Finally, trade credit insurance can provide peace of mind for staffing company owners and managers. Knowing that they are protected against the risk of non-payment can help reduce stress and anxiety and allow them to focus on running their business.
In summary, trade credit insurance is an important tool for staffing companies looking to protect their business from financial losses due to non-payment by their clients. By providing protection, improving cash flow, facilitating growth, managing risk, and providing peace of mind, trade credit insurance can be a valuable investment for staffing companies of all sizes. If you have any questions, please contact an MMA advisor.
