Bad Debt Protection
Any of your customers could go insolvent without you having any prior indication. With bad debt protection, you don’t need to fear that you will suffer because one of your customers has gone into the red.
Fincred IS is a broker of bad debt insurance for companies across the UK. Get our expert insight into this insurance product that protects your business.
What is Bad Debt Protection
Bad debt protection is a product that is combined with an invoice finance facility. It offers a level of protection against non-payment of your customers’ debts in certain circumstances such as insolvency. Bad debt protection is not an insurance product, it is a bolt-on product for companies that use invoice finance on a non-recourse basis.
The cost of bad debt protection is usually charged as a percentage of turnover and normally varies between 0.35% to 0.5%. Bad debt protection charges are either included in the total management fee charged for an invoice finance facility or charged separately.
If you use bad debt protection with your invoice finance facility, you should consider trade credit insurance as an alternative. Trade credit insurance can be a more cost-effective, flexible alternative that will allow you to continue using your invoice finance facility without recourse.
What Is The Difference Between Bad Debt Protection and Trade Credit Insurance
Bad debt protection, like credit insurance, can offer a level of protection against non-payment of customer debts. Bad debt protection is not classified as an insurance product, but as an add-on service to an invoice finance facility that allows you to operate your finance facility without recourse. With bad debt protection, you are limited to the credit limits available from your funder, which can then restrict the funding limits and ultimately the cash flow from your invoice discounting or factoring facility.
Credit insurance can provide protection against non-payment of your customers’ debts in the event of insolvency, protracted default or political risks. Like bad debt protection, credit insurance can allow you to operate your finance facility without recourse. As there are over 14 trade credit insurance providers in the UK, you have greater possibilities to obtain terms and credit limits that are more favourable to bad debt protection. For this reason, credit insurance can often give you access to higher funding limits, improved cash flow and more competitive terms. A specialist trade credit insurance broker is required to access the entire UK trade credit insurance market, which will provide the following benefits:
- You can access the entire UK trade credit insurance market
- You will be presented with a comparison of available terms and credit limits
- Trade credit insurance usually costs less
- We will negotiate terms and limits to ensure you are offered the most suitable protection
- Trade credit insurance policies can be tailored to fit your business model
- You may be able to obtain higher credit limits on your customers, which will allow you to increase your funding limits on your invoice finance facility
- You can still operate your invoice finance facility without recourse
If you’re not sure if trade credit insurance or bad debt protection is more suitable for your business, you’ve found the right people to help. We are experts in all forms of credit insurance and will navigate this complex market to find the solution that works for you.
We work with our sister company, Fincred CF, to combine bad debt protection and invoice discounting policies for excellent cash-flow protection.
Other Ways to Avoid Bad Debts
It is best to have a form of protection against bad debts while also trying to avoid bad debts occurring in the first place. These are the sorts of actions you could consider to reduce the risk of customer insolvency impacting your cash flow:
- Regularly credit check your customers using a reputable credit status agency
- Perform regular payment performance reviews to identify any potential issues
- Determine your customer’s creditworthiness and set credit limits on all your customers
- Ensure you have a good internal credit control procedure to identify, chase and recover debts
- Avoid offering credit at all to customers if you don’t feel confident in their ability to pay (instead, insist on up-front payment)
- Be conscious of the customer’s industry and geographic location: identify patterns of customers struggling to pay and use this to inform your credit terms
By combining prevention, mitigation and insurance policies, you can have total peace of mind.
Work with Fincred IS, Your Partner In Bad Debt Protection
As important as it is, choosing a form of protection for customer insolvency can be difficult, as it is a complex financial market. That is where the assistance of an insurance broker like FinCred IS comes in. From first contact to after the policy is in place, we are in your corner, arranging the best bad debt insurance policy possible for you.
Our service is bespoke. No two companies are the same. We find credit insurance policies that satisfy your unique needs.
Get a bad debt protection quote today. Contact us.
UK Wide Industry Statistics
Total value off all sales financed in the UK - £bn
Domestic invoice discounting - £bn
Total number of asset based lending clients
Domestic invoice discounting clients
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