Article first appeared in Scots Auto Scene

Trade credit insurance is a burgeoning industry – and with good reason. The highly publicised fallouts from the insolvencies of multinational construction services provider Carillion, wholesaler Palmer and Harvey and retail giant House of Fraser all sent shockwaves through the economy and contributed to the equivalent of £5 million paid out each week by credit insurers in 2018. With experts regularly citing bad debt as a leading cause for insolvency, businesses nationwide are increasingly looking for ways in which to protect themselves as unsecured creditors.

Introducing… trade credit insurance

Trade credit insurance, also known as bad debt insurance, is purchased by a business to protect against the risk that a buyer defaults on a payment obligation due to its insolvency, protracted default or political causes. An investment into this kind of policy can prove invaluable to an organisation, protecting it against the crippling effects of bad debts, which can include cash flow problems, decreases in revenue or a knock-on effect in payments to their own suppliers.

A leading independent broker for trade credit insurance is Financial and Credit Insurance Services (FinCred). The family-owned and managed business has a 26-year history of providing positive solutions to credit insurance, surety bonding and risk management for clients of all sizes across all industry sectors. Moreover, as the credit insurance broker for the Independent Automotive Aftermarket Federation (IAAF) and its members, the team at FinCred are intimately acquainted with the tough operating conditions that the sector is known for. But, as FinCred Executive Director Hannah Lyon-Wall tells Scots Auto Scene, many in the automotive trade are unaware that this type of insurance even exists.

“Trade credit insurance is still flying under the radar of many businesses in the automotive aftermarket; that is a key reason why we exhibited at Automechanika Birmingham this year. We were there to spread the word that if you are a business that is trading with another business on credit terms and your customer goes bust, or is defaulting on payment, then trade credit insurance will pay out for those unpaid invoices. All of our advisors are specialists in trade credit insurance.”

Hannah emphasises that, as a broker, FinCred do not directly supply the insurance but instead act as the agents in the best interests of their customers.

“We first establish exactly what our clients require out of their policy and then go to all the suitable insurance companies to collect the best quotes. We then present the terms and quotations back to the client. We are authorised and regulated by the Financial Conduct Authority to provide advice on which insurance option best suits the client’s requirements and why.”

Once a trade credit insurance policy is confirmed, companies can expand trade with peace of mind knowing that even in the worst case scenario, FinCred will be there to help safeguard this trade growth.

“We construct bespoke credit insurance policies for our clients. This includes whole turnover cover, which protects the entire ledger; this can be a cost-effective option as the risk is spread across all the policyholder’s customers. We also provide top buyer covers that protects against a company’s largest outstanding debts, such as the top 10 customers by value. Single risk cover protects only specific accounts, while catastrophe/excess of loss cover protects against larger losses with the client taking on a larger share of the risk. In each instance, we always go through each and every option with our clients to ensure the right solution is found.”

FinCred has worked with the IAAF to develop two exclusives schemes for members. The SME Trade Credit Insurance Scheme is designed for SMEs with a turnover of up to £5m, whilst the Trade Credit Insurance Scheme is designed for larger corporate entities. Both schemes remove the risk of trading with unknown partners, protect capital and profits, and facilitate business growth through competitive advantages. The schemes also allow companies to easily manage their chosen policy with the ability to use the insurer’s online portal. This, in turn, enhances credit control so that access to greater finances and funding can be achieved.

Hannah added: “If our clients begin trading with a new company or want to do more business with an existing customer, we are on hand to assist with investigations into the level of cover needed and available from the market. At renewal we will approach the credit insurance market to establish if the product they have is still the best one for their needs. We are always on hand as a first contact for any queries concerning the policy and to ensure our clients are protected.”