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If the credit insurer declines to cover a specific buyer, here’s what typically happens and some options to consider:
- Understand the Reason:
- Seek Clarification: Ask the insurer for the specific reasons behind the decline. This could be due to the buyer’s poor creditworthiness, high-risk industry, or country-specific risks.
- Evaluate the Information: Understanding the insurer’s perspective helps you reassess your own risk associated with that buyer.
- Possible Actions:
- Negotiate: Depending on the reason, inquire if limited coverage, a higher deductible, or lower coverage limits might be acceptable to the insurer.
- Explore Alternatives:
- Seek coverage from a different credit insurer with a higher risk tolerance.
- Consider other risk mitigation tools like factoring or letters of credit.
- Reconsider the Sale: If the risk is deemed too high and you can’t find suitable protection, you might need to decline the sale or restructure the terms to reduce your exposure.
- Impact on Your Business:
- Relationship Management: If you have an existing relationship with the buyer, you may need to communicate the decision carefully to preserve the business relationship.
- Sales Strategy: You might need to reevaluate your sales targets or focus on acquiring lower-risk customers if getting coverage becomes difficult for certain types of buyers.
Key Points:
- It’s Not Personal: The insurer’s decision reflects their risk assessment and doesn’t mean the buyer is inherently untrustworthy.
- Risk vs. Reward: Carefully weigh the potential benefits of the sale against the risks involved if you decide to go ahead without credit insurance coverage.
- Ongoing Monitoring: Continue to monitor the financial health of the buyer even after the sale is made. Early signs of trouble may allow you to take action to minimize potential losses.
Additional Considerations:
- Insurers often decline buyers due to insufficient or unreliable financial information. See if the buyer is willing to provide additional details that could change the insurer’s assessment.
- If the buyer is in a higher-risk country, explore whether country-specific coverage or government-backed export credit insurance programs might be an option.