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How long would your business survive if your clients didn’t pay you?

Date May 30th 2019 by in Category Insurance

The UK business economy is currently in a state of limbo as we wait for a decision around how and when we leave the EU. As described by Andrew Sentence, an independent business economist, the UK economy is in “no-mans land”, we are neither benefiting from being a full-blooded member of the EU, nor experiencing the full impacts of being outside. This prolonged period of uncertainty, combined with a number of other factors, has increased the trading risk for businesses and has led to an increase in the take up of trade credit insurance policies as they take steps to protect their businesses. In fact, in 2018 the number of claims made against trade credit policies were up 60% on 2017 figures, with early figures for 2019 indicating that even more claims have been made year to date.

What is trade credit insurance?

Trade credit insurance is an insurance policy that protects the policyholder from bad debt. It provides cover against customer insolvency and protects businesses if customers who owe money for products or services do not pay their debts or pay them later than the payment terms specified. Trade credit insurers will also cover political risk such as non-payment as a result of events outside the policyholder or customer’s control, for example, political events; severe weather disasters, or economic difficulties.

Trade credit insurance can be structured on a wide range of options from an entire customer portfolio through to specific accounts.

What sort of businesses have trade credit policies?

Any business that raises a purchase order or invoice where there is a risk of non-payment can purchase a trade credit insurance policy. This type of insurance policy is particularly of interest to recruitment companies, manufacturing businesses, food producers and the construction industry but realistically if your business relies on being paid by customers you should consider trade credit insurance.

What are the benefits of trade credit insurance?

  • Balance sheet protection. Knowing that your invoices will be paid regardless of the stability of your customers helps you to manage your business’ bottom line. This will further help to reassure shareholders in uncertain economic times, and should you need to claim on your policy, any overdue debt may be passed to the underwriters who have the power to pull a line of customer credit if needs be.
  • Peace of mind for the business owner/ manager. With trade credit insurance the policyholder knows their business is protected against both commercial and political risks that are beyond their control knowing that money owed to them will be paid. This helps companies to trade with greater confidence.
  • Increased security for banking/finance companies. Having a trade credit insurance policy can provide an additional level of credibility and can help to support loan applications. What’s more, for invoice finance applications, trade credit insurance is a prerequisite for applying.

If I take out a trade credit insurance policy, what are the three things I should bear in mind?

  1. Make sure that you are taking out cover against the correct business name. This is particularly important when you have a number of different company names trading under a holding company – make sure that the name on the credit limit matches the registration number of the company you are trading with.
  2. Make sure that you have a robust principle to contract in place.
  3. Make sure that you report any overdue payments within the stipulated time period. Policyholders usually have 60 days from the due date to report an incident of late/non-payment however claims may not be accepted if reports are submitted outside of this timeframe.

What are the next steps?

Get in touch!

If you are interested in finding out more about trade credit insurance or any other aspect of our Insurance services, please contact BCR Associates on 03330 433233.

Sources: https://www.abi.org.uk/news/news-articles/2019/03/bad-debt-britain---payouts-to-help-uk-firms-survive-unpaid-bills-now-at-their-highest-since-2009/

https://www.theguardian.com/business/2019/apr/29/brexit-is-still-chilling-the-economy-two-experts-debate-the-uk-outlook


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