Credit Insurance - Protect your Business

March 2021

During any tough economic climate businesses face increasing competition and sales are a life line to survival, post pandemic this will be even more prevalent with increasing competition inevitably there will be decreasing profit margins, even if you do win a key contract what if your buyer goes insolvent owing a significant amount of money to you.

A bad debt of £10,000 on a profit margin of 5% would require additional turnover of £200,000 to offset this one loss. For some smaller businesses this could wipe out the profit for the year, in worse case scenarios it could result in the insolvency of their business.

Protect your Business

Throughout 2020 and into 2021 it is widely expected that there will be a significant increase in the number of insolvencies as the ramifications of the Covid-19 pandemic continue. At the time of writing, many businesses are currently being held afloat by various government schemes and perhaps the real test will be how these businesses continue to trade once government support ends.

During particularly tough economic uncertainty it would be a wise decision to tighten financial controls, credit terms and chasing late payments. Even with your own in house controls you cannot foresee the complete worthiness of others, your buyers.

A Credit Insurance policy is seen by many as a credit management tool providing bad debt loss prevention. It assists in the avoidance of potential bad debt and would indemnity the policyholder in the event of insolvency or non‐payment by a creditor.

A typical Credit Insurance policy could provide you with the following:

• Insolvency & Protracted Default (non‐payment), plus Political Risks for exports
• Indemnity, typically 90% of the credit amount less the policy excess.
• Claims Settlement, Insolvency 30 days from receipt of confirmation of debt Protracted Default 6‐9 months from due date
• Some insurers offer inclusive Collections facilities which collect overdue debts on your behalf

In order to provide you with quotation for Credit Insurance, insurer’s will look at many varying factors to assist with their underwriting of a risk, this including Customer Health Checks and Credit Limit Calculators. Based on this analysis insurer’s can establish a credit limit to which the insurance will apply. Policies can be used as standalone invoice value or entire company transactions. The limits set by the insurer will be the maximum amount allowable to be owed for the insurance to remain effective.

Benefits for your Business.

With the security of a Credit Insurance policy in place, you can continue with your usual business activities in the comfort that you are covered up to the policy limits provided. Credit Insurance is often useful leverage for your business, as if a creditor fails to settle their arrears to you and the Credit insurer is required to step in, the Credit insurer may be unlikely to offer Credit Insurance to others for this same creditor, which may adversely affect that Creditors ability to secure sales in future.

Some credit insurers also give you access to credit checking facilities, enabling you to review and manage the credit exposures based on the insurers perceived credit risk of that creditor. In turn this could mean that you are also able secure more sales, increase cash flow and forge stronger business relationships with your buyers.

Get in Touch

If you would like to no more about Credit Insurance or would like a quotation, please do not hesitate to contact our office.