All you need to know about Trade Credit insurance

May 05, 2021
What is Trade Credit insurance?

Trade Credit insurance, also known as Credit insurance, covers the risk of a bad debt where a customer is unable to pay for goods or services that have been provided on credit terms, subject to relevant policy conditions being met. The policy guarantees that the insured debts will be paid, even if a customer is insolvent.

Can insurers reduce or remove cover on individual companies during the policy period?

The information on every company will change during a 12-month period and insurers will continually review all information, as would uninsured companies. Insured credit limits may decrease or increase in the light of this information and any goods or services provided with Credit insurance in place remain insured until those goods or services have been paid for. Where goods and services were covered, credit cover can never be taken away, only future orders will not be covered.

Will insurers only cover the biggest and most secure companies and not insure the ones we’re really concerned about?

Our clients are often surprised at how much cover is available across their entire debtor book. Many companies then use credit insurance to increase sales - offering higher levels of credit to their customers with the confidence that comes from knowing the credit risk is insured.

Do we still need Credit insurance if all our customers are “Blue Chip”?

Any company can get into financial difficulty and any company can become insolvent. Some companies are better credit risks than others and the price of Credit insurance can reflect the risk in your debtor ledger.

Our credit control is excellent, and we have not had any bad debts in recent years so why should we consider Credit insurance?

Credit insurance provides cover for risks going forwards and there is always the risk of a bad debt. It is good practice to understand the potential risk of a bad debt and to consider insurance before a bad debt occurs.

We have a strong balance sheet and good reserves to withstand any potential bad debt so why would Credit insurance be of interest to our business?

Credit insurance is a highly cost-effective way to replace a bad debt reserve and to free up cash that can be put to much better use in your business.

What is the difference between invoice finance and Credit insurance?

Invoice finance of any type is a funding solution which may or may not include Credit Insurance (or Debtor Protection). Debtor Protection linked to invoice finance may or may not be the most suitable or cost effective way to manage your own company’s trade credit risk. Our team of Trade Credit Insurance specialists will advise on alternatives so you can make an informed decision.

How do I make a claim under my business’s Credit insurance policy and how much will we get back?

As soon as you know your customer has become insolvent or is unable to pay, you should contact our specialist trade credit team who will see you through the claims process. You will typically receive 90% of the value of the insured debt. Claims will usually be settled within 30-60 days of the claim and supporting documents being submitted depending on the value/complexity of the claim. Our team has settled claims in less than 48 hours before!

Does the policy only provide cover in the event of an insolvency?

In general terms, a Credit insurance policy provides cover in circumstances where your client is unable to pay. That will most often be insolvency but may also include other financial difficulties.

Do we have to insure all our customers?

No, you don’t have to insure all your customers. When you work with our trade credit experts, they will look to provide you with exactly the cover you want. That may be individual contracts, individual customers, a selection of customers or all of your customers.

How much does Credit Insurance cost?

The price is dependent on a variety of factors, including the nature of your business, the quality of your credit management processes, and the strength of your customers. Get in touch with our team for a quote; we are sure our price will not be beaten for the quality of cover we arrange.

How we can help

Trade Credit insurance is a niche product that requires careful risk assessment. It is therefore important to work with an insurance broker who has specialist expertise and capabilities in Trade Credit insurance to ensure your business has the appropriate cover in place.

Get in touch to arrange an introductory call with our expert team to find out how we can help your business.

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Trade Credit insurance is a necessity for businesses operating in the construction industry, with more claims being paid out by Credit insurance companies in this sector than any other sector in the UK economy. Our specialist trade credit team, The Channel Partnership, have worked with construction clients for over 25 years.

If I work on a sub-contract basis, can I insure applications for payment?

Yes, construction policies arranged by our specialist trade credit team will insure you for the value of applications submitted, whether those applications have been certified, and work done on site not yet applied for. Also, variations, extras and final account balances. In short, we aim to cover you for the full extent of your exposure.

Can I insure retentions?

Yes, insurers can do this. Our construction specialists can explain the difference and help you secure the right cover.

What am I insured for if I make a claim?

Our trade credit experts aim for you to be insured for the full value of work done. This includes final account balances, certified applications, application submitted and not yet certified, work done on site and not yet applied for, variations and extras.

What should I expect in the event of a claim?

The first thing our team will do is establish the full value of the loss incurred. That process may depend on the stage of the contract and the accuracy of your paperwork. If it is not clear, we may rely on an independent Quantity Surveyor to help quantify the debt. All the way through, our aim is to get your claim settled as quickly as possible and for the full value of the claim.

Do you offer special terms for Plant and Equipment hire?

Having worked with plant and equipment hire companies for over 20 years, we have got to know that there are unique policy requirements we need to meet. Due to our team’s extensive experience, we fully understand these intricacies and are proud to offer market leading solutions to protect you.

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