Consider these situations. You may have experienced one or more of them in your own business:
A customer has failed to pay you in the past
To you and your business, a large unpaid invoice can easily become financially perilous, or at least stressful and mentally taxing.
You have received a large order from a customer have not traded with before
Which is more foolish: to reject the order entirely and miss out, or to accept it without any contingency plans?
You are seeking new customers and want to offer attractive credit terms
You want to give customers a great offer, as long as it doesn’t hurt your business. The better credit terms you give your customers, the more risk you are taking on.
So what is the solution?
You insure yourself against non-payment with trade credit insurance. This protects your business against all these scenarios. It is a form of “Insolvency Protection”.
Trade credit insurance is not just for huge organisations. If anything, SMEs benefit the most. A small business might be more reliant on fewer customers that create a large proportion of its income, may have less cash reserves to overcome a bad debt, or profit margins that mean it would be difficult to recover from a loss. Therefore, just one or a few unpaid invoices can be really bad news!
Credit insurance can also help a small business be more competitive in their marketplace. Whereas large companies can offer extremely generous terms thanks to economies of scale, small businesses need to be more risk-averse. Insurance helps fill that gap.
What are some other signs you might need trade credit insurance?
Did you know that the number of insolvencies in the UK is increasing? According to The Insolvency Service, there were 79% more insolvencies in May 2022 than in the same period last year.
These are some signs you might need trade credit insurance:
- Customers have paid you late before, or have otherwise indicated cash-flow problems
- Non-payment of certain large invoices would put serious strain on your company
- Your invoice finance agreement includes “bad debt protection”, which is restricting your funding limits
Which type do you need?
It might be helpful to have an idea of what sort of trade credit insurance you are looking for. As a specialist broker we can talk through all the coverage options with you. Have a look at this graph for more information:
What do each of the cover types mean? See the below table for more information:
|You can only make a claim if your customer has gone insolvent as defined within your policy but usually an event where the assets and affairs of a customer are made subject to control or supervision by the court or body appointed by the court in order to reorganise or liquidate the customer or reschedule or settle the payment of its debts or a where a customer has a lack of assets to complete the aforementioned procedure||You can claim for insolvency of a customer but also “protracted default”. A “protracted default” (ie. a situation where a customer will not be able to pay within a predefined period) is also grounds to claim against the invoice or debtor. Political Risks can also be included to protect from non-payment due to political factors such as a Trade Embargo.|
As you can see, credit insurance can be tailored to any business, big or small.
What will trade credit insurance cost?
Just like other insurance you might have purchased, the costs of trade credit insurance for a small business depends on the specific circumstances of your company. The insurance company will consider your industry sector, number of customers, turnover, loss history, and other factors to calculate your quote.
With a broker like Fincred, it is easy to get multiple no-obligation quotes so you can quickly decide if credit insurance is something you want to explore. Get your quote today.
How to get credit insurance
Getting trade credit insurance through a broker isn’t difficult, especially for an SME. Not only that, but for businesses of this size, excesses are lower (starting at £500).
When you contact Fincred, we will conduct a Discovery Call to find out information about your business and your customers and source quotes from a trade credit insurance company that suits your needs.
When the policy is in place, you need not worry if you get the news that a customer of yours has gone insolvent. Instead, you contact FinCred IS or your insurance provider, file a claim and, minus the payment of your excess, the value of the unpaid invoices are sent to you by the insurance company.
The policy will be monitored and can be updated over time (for example, when you receive new customers).
Ready to get a quote?
Interested in how trade credit insurance can benefit your SME? Don’t hesitate to send us a message or give us a call today: Contact Us.
Not sure if trade credit insurance is for you? Tell us what your concerns for your business are and we will help you find the insurance that solves your problem.
If you just want to see some tactics you can use to avoid late payments from your customers, read this blog next: How Can Businesses Avoid Late Payments?