“Trade credit insurance covers you for losses experienced as a result of one of your debtors defaulting on trading debts they owe to you.”
A policy provides peace of mind for shareholders and stakeholders knowing you won’t go bust from having a bad debt.
There are a number of other benefits to businesses taking out credit insurance:
- Acquiring better finance – Financial Institutions will typically lend more wealth to businesses who have trade credit insurance in place.
- Protecting against non-payment – Should a customer be unable to pay their debts due to insolvency or prolonged default, trade credit insurance will pay out a percentage of the remaining amount owed (typically around 90%).
- Reducing bad-debt reserves – Trade credit insurance helps free up capital for the business to use elsewhere. In addition, credit insurance premiums are tax deductible, unlike bad-debt reserves where a company simply sets aside money in case a debt is not recoverable.
- Empowers business growth – By taking out Trade Credit Insurance and working closely with a credit risk specialist, you will be able to demonstrate to lenders that your business has a dependable cash flow, and is more than able to pay back a loan.
However, businesses have to meet certain requirements to be able to claim under these policies. The policy will usually stipulate how often the” business needs to issue invoices, for instance “immediately”, “within 14 days” or within 30 days”. Businesses that don’t meet this condition, for instance by only issuing invoices every 60 days, may find they are not operating within the policy’s terms and their claim may be denied.
“The starting point is to make sure you’re dealing with people who are genuinely creditworthy. You should not have to claim against the policy if you make sure that you have watertight policies around checking the creditworthiness of your customers. But businesses can quite quickly go from being creditworthy to insolvent. So, there is always a risk a business will fail and not be able to meet its obligations. That’s why trade credit insurance is so important,” says Michael White (Steadfast’s broker technical manager).
So Does your business qualify?
- Do you have exposures which could sink your business or reduce your profits for the year if they were to fail or not pay you?
- Do you have any concern about any of your debtor’s ability to pay?
- Is your trade receivables one of the largest assets of the business?
- Do you have transparency about how your debtors pay other suppliers or how they are funding their business
- Do you have a history of bad debts?
- Are you long overdue for a bad debt?
Leading economists predict a significant rise in liquidations this year.
Contact us to arrange for a no obligation quote to protect your accounts receivables.