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The Basics of Trade Credit Insurance: What You Need To Know

What is Trade Credit Insurance? 


Trade credit insurance is a service that provides coverage for bad debt by removing the risk factor. It’s not uncommon to have a customer who is unable to pay for the goods or services provided on the credit terms, especially in the current climate. This may be more frequent than not. 


Choosing a policy that suits your needs from a reliable United Kingdom credit insurance firm will guarantee that the insurance debts are paid on time, even if the customer is insolvent. 

How does it work? 

When establishing a credit insurance policy with a reliable firm, you will provide a number of details about your company and the kind of clientele you have, including a list of your top buyers and a recent loss history. 


Insurance firms will review the financial health of your buyers and recent loss history in order to establish trade credit terms and limits, such as the maximum invoice period and your premium. 


For example, if you set a maximum invoice period of 30 days and your customer has not paid within that extended time, you have the option to notify your chosen credit insurance broker, and they will provide the service of collecting the debt on your behalf. If your customer becomes insolvent or is unable to pay the outstanding balance, you have the option to file a claim to recover the debt. 


A number of policies cover consistent maintenance and monitoring of your customers and the credit limit, which can in turn help you expand your business safely and avoid any delays in growth. As your company expands its sales, new customers can be added to the policy. While insurance brokers may set credit terms and limits for each individual customer, they are not set in stone, and there is freedom to apply for the limit to be increased, reduced, or removed.


How much does it cost? 

The price is dependent on a variety of factors. When you work with trade credit experts, they will look to provide you with a cover that works well with your business while taking into account the nature of your business, the quality of your credit management processes, and the strength of your customers. 


Before you commit to any policy, ensure you understand and are educated on all your options, and don’t be afraid to ask for a quote. 

What policies are available? 


As they come in various forms, policies can be customised to meet the specific needs of the business. The availability and types of trade credit insurance can vary by region and insurance provider. Its crucial to do your research to find the most compatible insurance provider. 


Here are some common types of trade credit insurance: 

  1. Whole Turnover Policy 


This is the most common form of trade credit insurance that provides full coverage for business customers against non-payment or insolvency from any type of customer, with the exception of government departments, local authorities, cash and credit card sales. This may vary across insurance firms. 


This policy may be more attractive to those doing business-to-business (B2B) sales.

  1. Export Credit Insurance 


The principle of export credit insurance is the same as that of trade credit insurance in that it provides cover for your business, but with a specific focus on overseas trade. It additionally provides protection against non-payment due to political or economic factors in the customer’s country. 


This removes political risks, currency transfer issues, civil unrest, and unpredictable tarrifs and ensures the problems are solved smoothly and effectively. Exporting can be a very valuable part of trade; therefore, finding the right export credit insurance is crucial to helping remain competitive. 


This type of policy will suit any kind of business or service that trades overseas.


  1. Specific Account Insurance 


Spefic account fraud is also commonly referred to as a single buyer policy or single account policy. This type of insurance protects you from loss for a single customer. It’s most popularly used by companies that strongly rely on one credit for a large portion of their sales. 


This policy can help your brand expand by providing more favourable credit terms to your customers. 


  1. Selective or Key Account Policy 


This may sound similar to a specific account policy; however, this policy allows a business to select specific high-value or strategically important customers for coverage. Its a more multiple-targeting approach than one specific account. 


This may be suitable for businesses that have a few buyers that provide a similar but large portion of sales or those that have had an unreliable history with paying invoices on time. 

Why credit insurance? 


Some businesses may be in a comfortable position where they have excellent credit control and no debts, and while this may be the case, there is also risk in the future, whether its a customer issue or a political issue. Having that safety net around your business will ensure that your growth is consistent and that no sudden changes have an immediate effect. 

What is the difference between invoice finance and credit insurance? 


Invoice finance is a funding solution that can include credit insurance or debtor protection. Which can help with cash flow by advancing funds tied to invoices, while credit insurance protects against customer non-payment or insolvency. They serve different purposes but can work well together when managing financial risk is the main aim. 


How do I make a claim under your credit insurance policy?


As soon as you are aware that your customer has become insolvent or is unable to pay, you must contact your chosen trade insurance providers, who will walk you through the claims process. 


This may vary, but typically, you will receive 90% of the value of the insured debt. Claims are usually settled within 30–60 days of the claim being made, and supporting documentation is sent. This can vary depending on the complexity of the claim. 


What are the benefits of trade credit insurance? 


There are a number of benefits and limits to each policy, but overall, they share the same intentions. 


  • Your business is protected from bad debt.
  • Freedom to expand your business while maintaining financial security
  • Likely to secure increased funding at more competitive rates.
  • Allows your business to remain competitive.
  • More opportunities to build stronger relationships with your customers 


Overall, trade insurance is a valuable risk management tool that can help protect your financial stability, reduce credit-related losses and support growth and expansion efforts. While providing a safety net against uncertainties that come with life and such a competitive business world. Credit insurance allows your business to navigate challenging times with greater confidence. With a reliable firm, you can rely on your money coming back every time. 


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