The Soft Costs of Self-Insurance Will Get You Every Time

You got to where you are today by doing a lot of things yourself. Making it up as you go. Wearing a lot of hats. Saying “yes” and then figuring out how later. But to advance to the next level you have to change some of this thinking now that you have more resources at your disposal. And a strong stable of partners to help.

One common area where leaders fail to evolve is in continuing to own their own risk when it comes to insuring their AR. In these instances, business owners agree to accept the loss of any unpaid invoice amounts, plus the full costs required to manage their internal credit granting processes. These businesses typically self-insure by using a bad debt reserve to offset losses, researching customers on their own, and owning all the risk internally. Is this you? Keep reading.

Self-insuring may come without a direct cost, but it offers limited benefits in the event of a catastrophic loss. Remember, unpaid invoices weaken your cash flow and those additional costs will add up quickly. It also requires more resources to manage the risk. Use the self-Insurance comparison chart below to see how much self-insuring might be costing your business. It’s real money.

The Benefits of Trade Credit Insurance (TCI)

TCI protects your business from non-payment of commercial debt, making sure invoices are paid and allowing you to reliably manage the commercial and political risks of trade beyond your control. It protects your capital, maintains your cash flows, and—most importantly—secures your earnings against defaults. When compared to self-insurance, TCI provides you with a safer, more strategic accounts receivable management option. To break it down further, take a look at how both approaches compare for various aspects of your business:

 

Mitigating Risk: A Comparison of Methods

Feature Self-Insurance Credit Insurance
Coverage Any Loss Insolvency, protracted default and political risks
Services Internal resources Credit information, risk assessment, market intelligence, debt collection
Financing No effect None, but can facilitate financing
Customer Relationship Maintain direct relationship with customer Buyer is unaware of credit insurance contract; better terms enhance relationship with customer



Be Bold With Euler Hermes

How many opportunities are you missing by self-insuring? Now that you’re working with some raw numbers, can you imagine what you could do with this working capital? With all those soft costs affecting your bottom line, could you realize increased efficiencies by allowing TCI to handle the risk while you put that money to work?

The answer is yes.