Self insurance simply means setting money aside in case of bad debt. Often, companies simply keep a sum in a separate bank account for emergencies only.
This approach to business protection harks back to the days before insurance was invented and is essentially just old-fashioned thrift. Putting something aside for a rainy day may be enough to protect your business from the occasional bad debt, but in today’s complex business climate, customer insolvency is just one of many threats.
The upside of self-insurance
Using a financial cushion to protect your business is easy. It puts you in control and can be used against all kinds of eventualities, not just to cover bad debts. And it means you aren’t paying insurance premiums, which can often seem expensive or, if they are never used, can be seen as an unnecessary cost.
The downside of self-insurance
If you are planning on buying self-insurance, you have to remember that when it’s gone, it’s gone. You can’t control what happens to other businesses, and if more than one or two fail, your funds can quickly run out. Remember, insurance companies have much deeper pockets.
Realistically, how much can your business save to cover potential losses? Insurance payouts can be much higher than any realistic amount you are able to save, and you will not have capital tied up that can be used for business growth.
So is credit insurance a better option?
We think so. Not only will we pay out in the event of you not getting paid, but we offer so much more as a policyholder.
With Coface Credit Insurance, you have access to our database of constantly updated financial information on 80 million companies around the world, so you are much better placed to avoid bad debt.
Also free with Coface is a massive business intelligence resource; you can learn more about political risk and economic trends and access exclusive country reports.