It used to be that credit insurance was exclusive to the large companies that could afford to pay the high premiums in exchange for a bit of financial peace of mind. Not any more. In response to the economic slowdown and an across-the-board reduction in consumer spending, now even small and mid-sized businesses are considering this risk management tool.

Credit insurance, also known as business credit insurance, protects the insured business from customers who pay late on their invoices or who become insolvent. Though insured businesses cannot get money up front, as in the cases of factoring or invoice discounting, credit insurance provides a safety net that protects these businesses from the financial suffering incurred due to a debtor’s protracted default, insolvency or bankruptcy.

Generally, companies that accrue a few million dollars in yearly revenue can get credit insurance. Small and mid-sized business owners should keep in mind, however, that premiums vary greatly depending on the size of a business and its industry as well as on the credit terms that the business extends to its customers (i.e. are invoices payable within 30 days versus 90 days).

Even so, credit insurance may be worth the cost for smaller businesses in exchange for the peace of mind it brings in these financially turbulent times.

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