Many companies choose to self-insure by having bad debt reserves.
Setting aside funds for this purpose, enables your business to offset the deficit should you have any unpaid invoices from your customers.. Cost considerations include:
- Investing in credit management resources, systems and data to consistently analyse and monitor your credit risks
- It may impact your sales, depending on your risk tolerance. You will not want one customer to eat up all your reserves should they go insolvent
- It will impact your working capital
- You may struggle to build reserves fit for large and unexpected catastrophic losses
Some companies may also consider proform invoicing – where payment is required before goods or services are provided. Find out more about the risks.