Credit insurance is sometimes required of early stage companies where their credit is not as strong yet. 

There can be a perception that carries over from the mortgage industry.  People with weaker credit scores may be required to get personal credit insurance (PMI) in order to qualify for the mortgage.

When I was head of finance and operations at a toy manufacturer, we had to have credit insurance in our earlier days.  It helped us receivables financing that we might not otherwise have qualified for.

However, credit insurance is not just for the emerging or weaker credits.  There is also a way that more established companies can put it to good use as well.

You might ask, why would they take out insurance that they don’t have to have?

1.     It could allow them to get a lower rate on their receivables financing from their bank.  The reduced rate could more than offset the cost of the insurance.

2.     It could allow them to get a higher advance rate on their receivables.  They could jump say from 75% to 80% availability.  The extra money they can get on their line of credit is cheaper than other forms of financing such as equity.

3.     It might allow them to get some receivables financed that otherwise not get financed, such as foreign transactions.

It is an area not often looked into.  For a very low cost, you could get a lot of bang for the buck.

There are a number of firms that handle this for more established credits.  One example is Euler Hermes.