In the light of the recent widely publicised collapse of Carillon and other high profile companies it seems that many small businesses further down the supply chain may well not receive money owed, leaving them in considerable difficulty.
It is just this kind of situation Credit Insurance is designed to guard against. Most of these suppliers would have assumed that in dealing with such a large firm they were reasonably safe, even if they had to provide much longer credit terms than they would normally have considered. Sadly not!
With more than 80% of day-to-day business-to-business transactions enabled on credit terms in the UK today, managing and protecting your financial interests has never been more important.
Most people are aware of the need to be insured against loss or damage to property, but against poor payers? Yet research indicates that of all companies that fail, 18% do so as a result of experiencing bad debt or poor working capital.
Unpaid invoices can represent up to 35% of a company’s assets and are vulnerable to loss if your customers fail to pay.
Credit insurance protects your business from non-payment of commercial debt. Your insurer will assess the credit worthiness and financial stability of your insured customers and assign them a specific credit limit, which is the amount indemnified if that insured customer fails to pay.
It makes sure that your invoices will be paid and allows you to reliably manage the commercial and political risks of trade. Trade Credit Insurance provides a tried and tested protection against companies which, for whatever reason, don’t pay.
As a result, you have greater confidence extending more credit to current customers and pursuing new, larger customers that would otherwise seem too risky. If your customers fail to pay, your insurer will cover the insured invoices and take care of the debt collection.
Without the back up and information that a credit insurance firm can provide, deciding on how much credit to allow a customer, be they new business or clients of long standing, requires numerous factors to be taken into account that can be easily overlooked in the excitement of gaining that great order. However, should that substantial customer then default on his payment or become insolvent it can cause your business severe problems.
Credit Insurance is a valuable tool in your credit management armoury, providing access to risk analysts who have an in-depth knowledge of your customers. As those who have Credit Insurance are aware, policies provide access to unique, continually updated, financial information on both new and existing customers.
With a Credit Insurance policy in place you are armed with a powerful financial and economic information source enabling you to develop business with successful and secure partners, proving that a policy is also a powerful marketing tool.
There are many types of Credit Insurance policy available that can be tailored to your own particular requirements. Whether you want to credit insure your entire customer base or just require a policy to provide information and security on your export debts.
These options should be discussed with your broker; he has the expertise and will be able to advise on the levels and types of cover most suitable for your business. Having an expert advisor in your corner throughout the first-time and renewal application process is essential. Getting paid in the event of default depends on your compliance with the contract, and your broker has a vital role in ensuring you understand your responsibilities as a policyholder and advises you accordingly. A reputable broker will always work in partnership with his client, and use his objectivity and broad market knowledge to achieve the best result.
The ability to see real time information has enabled credit limits to be written with much greater certainty, enabling underwriters to offer bespoke solutions, while intense market competition has forced premiums in many instances to pre-recession levels, making the product more affordable to both existing policyholders as well as to companies looking to insure for the first time
Companies should not overlook the major benefit to their own creditworthiness that having Credit Insurance in place provides. Banks and other lenders will see you as a much lower risk, enabling you to secure better borrowing terms. A credit insurance policy can be used to provide security to a lender for trade or export finance. In some cases, your bank or lender may actually require credit insurance in order to qualify for a loan.
In fact, as recent events have shown, credit insurance is not just a sensible precaution; it is an essential, providing all round benefits for any business.