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Credit Insurance: Supporting your cashflow

The majority of businesses insure their physical assets, so why do so many businesses not insure their cash? Unpaid invoices can represent a significant proportion of  businesses assets yet many companies choose not to buy Credit Insurance.

Credit Insurance has been around since the late 19th century and yet so many companies are either not aware that it exists or choose to take the risk. Credit insurance will replace the cash of a bad debt caused by a customer’s insolvency or payment default following the sale of goods or services provided on credit terms.

There are various cover options available although the main types are Whole Turnover and Key Clients. Insurers use a variety of credit rating agencies to monitor company performance and this analysis forms the basis of the credit limits they will allow for your customers. If Insurers don’t offer you the full amount of credit applied for there is usually a good reason for their decision, which may make you question if you would want to be offering your customer a particular level of credit?

The policy covers customer insolvency and protracted non-payment and often insurers will allow you an element of discretion for smaller customers based on your trading experience. Additionally, policies will usually pay up to 95% of the outstanding amount should a claim occur.

The level of credit insurance is usually agreed at the start of the policy. However, insurers are flexible and understand that your business can change substantially over a year. Most insurers have a facility for you to choose your credit limits throughout the year as your customer base changes. Often credit insurance is supported by an online facility which ensures decisions are made quickly.

As well as vital protection against the effects of bad debt, credit insurance can also benefit your company in a number of ways:

  • Fast replacement of working capital
  • Greater access to finance facilities
  • Supports your credit management/control procedures
  • Business Development
  • Supplier Relationships
  • Increased information on your customers
  • No need for bad debt reserves
  • Peace of mind

The Association of British Insurers (ABI) has recently revealed that £4 million is paid out per week in credit insurance claims in the UK alone!

If you would like to discuss this area of insurance in more detail with one of our Account Managers, you can reach us on either 01302 341 344 or 0114 243 9914.

By Andy Morley – Group Managing Director

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