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The Advantages and Disadvantages of Purchasing Commercial Credit Risk Insurance

By Michael Dennis

Purchasing business credit insurance can substantially reduce the risk of exposure to customer non-payment, and an accompanying bad debt write off. Commercial credit risk coverage can be written to cover a company's entire customer base, or it may be targeted to cover only certain specific customers or types of customers. A domestic credit insurance policies [in contrast to an export credit insurance policy] covers only "commercial risks." Commercial risks can be thought of as events generally within the control of buyers and may include depending on the specific terms of the domestic credit insurance policy:

Some of the disadvantages of a commercial risk credit insurance include:

One final thought: The more customer accounts that are denied coverage, the more coverage limitations that are contained in the policy, and the more terms and conditions and restrictions an insurance policy proposal contains, the more difficult it will be for the company considering purchasing it to perform a cost-benefit analysis to decide whether purchasing the policy is a good idea.

Created on 21-Mar, 2011 by HKCCMA.

Last Edited on 09-Apr, 2011 by HKCCMA.