Credit Insurance

What is credit insurance?

The purpose of trade credit insurance is to protect organisations from unpaid debt and allow them to maintain a healthy cash flow.

Did you know as many as 80% of business-to-business transactions are carried out as a credit agreement? Imagine the chaos that would arise if even half of these transactions never got paid in due time.

Credit insurance does not only protect your finances, but it also encourages and supports growth in all aspects of your business.

Protection from risks

Credit insurance offers protection from two main types of risks:

  • Commercial risk:  when a buyer is unable to clear their debt due to financial issues, for example insolvency or bankruptcy
  • Political risk: when a buyer is unable to pay for reasons unrelated to finance, such as a foreign currency shortage, political disrupt (wars and revolutions) or natural disasters

Short-term accounts receivable (payments due within 12 months or less) will be covered by credit insurance.

What is trade credit?

Trade credit is a useful method of short-term financing that is becoming increasingly popular with businesses. It allows buyers to purchase goods and services on credit terms and make the full payment at a later date. The standard time period for this tends to be between 30-90 days.

Trade credit can be very beneficial. Say you have purchased a service. Being able to pay for it once the service has finished would be preferable so you can ensure you are satisfied with everything.

Offering an extended repayment period enables buyers to sell on the goods they’ve acquired, which in turn makes them money, which can then be used to pay the supplier before the time period is up.

In general, trade credit is used to fuel the growth of businesses. Businesses that use trade credit are also looked upon much more favourably by buyers compared to those who don’t.

Who should have credit insurance?

If you frequently provide goods or services to customers on credit terms then you would benefit from credit insurance, regardless of the size of your business.

Industries such as mining, energy and automotive are obvious examples of those who require credit insurance, but any business that operates in a cyclical manner should consider purchasing credit insurance too.

Organisations seeking to avoid bad debt should always consider arranging credit insurance.

Is it the same as payment protection insurance?

At this point, you might be wondering if credit insurance is any different to payment protection insurance (PPI), which was at the centre of a nationwide legal battle between banks and consumers.

Payment protection insurance was sold to bank account holders alongside a loan, mortgage or credit card, with the purpose of protecting the account holder financially in the future if they become unable to repay their debts. The uproar occurred as a result of PPI being widely miss-sold. Some banks simply added the cost of PPI to loans without informing customers, and others went a step further by insisting that PPI was compulsory.

On the surface, credit insurance might sound similar to payment protection insurance, as it essentially does have the same fundamental purpose; covering payments which cannot be made for one reason or another. Credit insurance is suited for businesses who want to minimise the risk of their clients missing payments, whereas PPI would be sought after by the clients themselves.

When explained and used properly, PPI can be a beneficial form of insurance and is still offered by reputable insurance brokers to this date. However, PPI is significantly different to credit insurance and business owners must remember this.

Protection for unpaid invoices

The impact of unpaid invoices on your business can be disastrous. It was predicted that around £32.4bn was owed to UK businesses in 2015.

Not only will you be facing financial strain such as lower profits, inability to pay your suppliers or staff, but the relationships you have with your customers can also deteriorate. Invoice protection is one of the main benefits of having credit insurance, along with many other less-obvious advantages.

The benefits of credit insurance

  • Better relationships with buyers

Customers will perceive you as more trusting, flexible and well-organised if you allow them to extend or withdraw credit. You can also be confident that you are working with the best customers when you have credit insurance, as we will analyse the creditworthiness of your entire clientele. We will provide you with helpful insights in relation to the financial status of your customers.

  • Debt protection

Knowing you will never miss a payment you are owed is undoubtedly the most obvious benefit to credit insurance. You will no longer need to chase up customers who owe you money and you don’t have to worry about your reputation being harmed as a result of debt. You will have an improved cash flow as a result of receiving payments through us for any insured invoices that are unpaid.

  • Safely grow customer base

The many risks associated with expanding your services to new clients based overseas, or in different sectors, will all be minimised, allowing you to expand sales with confidence.

  • Better funding and borrowing options

The financial security offered by credit insurance will mean that banks are more willing to work with you and provide favourable loaning terms. You might find that some banks are actually reluctant to loan money to you if you don’t have credit insurance in place.

Arrange credit insurance with Insure 24-7 today

Our brokers are dedicated to ensuring that none of our clients ever sign an insurance policy without fully understanding its content and what it covers.

When it comes to policies as unique and personal as credit insurance, we believe it is important to work closely with the same broker as to ensure that your business needs are thoroughly understood and being fully met. Please don’t hesitate to contact us today in order to receive a free quote for credit insurance.