Every company with receivables faces the same fundamental choice: absorb potential losses from customer defaults, or transfer that risk to a credit insurance carrier. Here's how to think through that decision.
Self-insuring means you set aside reserves to cover potential bad debt rather than paying premiums to a carrier. Many companies do this implicitly without even realizing it.
Credit insurance pays claims when policyholders can't collect from their customers due to covered events like bankruptcy or protracted default.
The right choice depends on your specific situation. Consider these factors:
| Factor | Favors Self-Insurance | Favors Credit Insurance |
|---|---|---|
| Customer concentration | Diversified base, low per-customer exposure | High concentration, large individual balances |
| Industry volatility | Stable, predictable customer base | Cyclical or high-risk industries |
| Profit margins | Thick margins can absorb occasional losses | Thin margins where bad debt is existential |
| Growth plans | Stable, no significant expansion | Aggressive growth into new markets/customers |
Many companies find that a combination works best: self-insure for lower-risk customers where exposure is manageable, and insure the higher-risk or concentrated accounts where a default would be significant.
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Get Your Free Risk AssessmentThe information provided on this page is for educational purposes only and does not constitute legal, financial, or professional advice. Every situation is unique, and you should always consult with a qualified attorney, accountant, or financial advisor before making any decisions related to credit insurance or self-insurance strategies.