What is trade credit insurance?
Trade credit insurance has one simple aim: to support your business when a customer fails to pay a trade debt.
That situation may occur when a customer becomes insolvent or does not pay within the contracted terms (a protracted default). The insurance indemnifies a proportion (up to 95%) of the debt owed to you. You must have traded within the limit we give you for that customer.
How much does trade credit insurance cost?
The premium is calculated for your business and the way you trade. This helps us make sure you receive the best match and service excellence for your business as well as an affordable premium.
If you haven’t used it before, here’s how to work out what it might cost for one of our more popular policy types. The premium is based on a percentage of your sales, generally below 1%. Suppose your sales were 2 million last year and you want to cover that entire turnover. Then the premium would usually be less than 20,000.
Remember that premiums go up or down from year to year. They are affected by the losses you have experienced in the past, the customers you deal with and the sector you work in. Covering political risk as well as trade risk costs more. We calculate the best price for your situation so that these factors and your needs are taken into account.
Is trade credit insurance really worth the investment?
Trade debts can make up 40% or more of business assets. Just a few instances of failure to pay can make a big impact on your cash flow. The cost to a business of non-payment can be considerable. If you have a 5% profit margin and suffer a 100,000 debt, you’ll need to win sales of 2 million to make up for the lost profits.
Plus, your financial position can be weakened by bad debts in other ways. For example, your cash flow will be affected and you will have less capacity for investment. Banks and finance providers could charge you higher interest. The morale of your employees may be affected if they become worried about their future in the business. Consider these effects and what they might cost when you think about the value you will gain from trade credit insurance.
Will trade credit insurance help me if political events affect payments?
Yes. Exporters concerned about political events can also benefit by cover for non-payment as a direct result of events in the buyer’s country. Typical situations can be war or cancellation of a contract by the local government. Another example is when a government imposes rules that stop goods being exported or imported or when regulations prevent hard currency transfers.
What kind of business needs trade credit insurance?
Every business can benefit from good credit management. Trade credit insurance is one of the most important tools for that purpose. If you’re selling on open account terms to other businesses then trade credit insurance could bring many benefits. Even if you trade on other terms we have services that can support and strengthen your trading activity.
We’ve designed a range of trade credit offers for different types of business and transactions. Please get in touch with us to discuss what would be most suitable for you.
I work in a small business, is trade credit insurance right for me?
Our insurance is designed for businesses with sales of at least £1million per year. If your sales are lower than this, our insurance may not be the most suitable product for you. We suggest you speak to your insurance broker or business bank manager who will be able to point to other ways you can protect your business.
I’ve been dealing with the same buyers for years. Do I really need to worry?
Many businesses trade with customers of long standing that seem well funded. They believe payment can be relied on. However, even the strongest commercial concerns can be affected by the economic cycle and commercial trends.
It takes considerable investment in data collection to keep track of customers’ financial health and to evaluate the risk of non-payment. We make that investment so you don’t have to and make analysis available to you. Insurance backed by insight allows you to trade with confidence through all phases of the cycle; today and tomorrow.
I have some long term deals (more than a year) in progress. Can I cover them?
Yes, we have experience in supporting longer term transactions (for example, multi-year contracts). Get in touch with us and let us know what you need. We’ll be pleased to make recommendations.
How can I get the most value from trade credit insurance?
There are many benefits to trade credit insurance. If you have just started with trade credit insurance it can be useful to review your processes and procedures so that you gain the greatest value from your policy. We can advise you on best practice too. Here are some examples of what you can do.
- Train your employees on the use of our systems. Use our information on limits and grades to improve credit control and defend against catastrophic bad-debt losses.
- Demonstrate the enhanced quality of your accounts receivable when negotiating with lenders to access better terms.
- Build our information into your sales planning to target the most financially sound new customers.
- When developing strategy and business plans, identify the risks in new markets and opportunity areas with our data.
- Access our debt collection capabilities and network to accelerate speed of payment. Aligning your processes with our systems will improve efficiency.
- Strengthen your cash flow by insuring invoices so that you are indemnified for non-payment.
- Design your financial management and reporting to identify performance improvements.