8 Reasons Your Business Needs Trade Credit Insurance

Running a business can be one long round of paperwork, paperwork, and more…paperwork. Top of the list (apart from making sure your tax and VAT returns are in order and sent in on time) is insurance. From public liability to employer’s liability insurance, interruption of business or even special motoring insurance for your fleet, it seems that every broker wants just a little bit more of your hard-earned turnover.

Insurance is essential (and in the case of employer’s liability, a legal requirement if you have people working for you), but surely you can keep it to a minimum and avoid any other types of business insurance other than the bare essentials? Well, we hate to tell you this, but there’s another layer of insurance you really do need to consider if you’re running a business and that Trade Credit insurance.

What is Trade Credit Insurance?

Trade Credit Insurance (or TCI) is an insurance policy that gives business owners a little bit of financial protection if customers who owe money for the business’ services or products do not pay, or pay after the payment terms on the invoice, incurring costs. It usually covers a 12-month period, so if a person doesn’t pay their bill after a year, Trade Credit Insurance kicks in and covers the costs.

TCI is a ‘risk management’ form of insurance, which gives business owners the confidence to offer a line of credit or account services to both regular and new customers. It’s particularly relevant to trades such as building, where repeat customers can build up substantial lines of credit with businesses who supply everything from (quite literally) bricks to mortar.

But if you’re not a trade supplier, is TCI still relevant to you? Here are 8 reasons why we think it most definitely is.

1. Credit checking isn’t enough

Most businesses assume that a credit check will give you all the information you need to make an informed choice as to whether to offer credit to a customer. However, while this will give you a ‘snapshot’ of the health of their business (such as whether there are any CCJs against the owners), it won’t tell you about what kind of customer they are. Do they pay their bills on time, or are they being continually chased for late or non-payment? Do they have a contingency plan or finance strategy if they hit troubled waters? Are they in a strong financial position and able to meet all their commitments? A credit check won’t reveal if there are any weaknesses in the overall health of a business, so TCI is there to give you a level of financial protection should things go wrong.

2. Events beyond your (or their) control

Marketplaces can be incredibly volatile, and a stock market crash in New York can lead to real problems for business in the UK. If the world supply of steel jumps in price, for example, then your customers may be hit hard. Political upheaval (such as Brexit) also causes widespread market disruption, that can, particularly for SMEs, filter down into harder, more challenging financial situations, both in the short and the long term.

3. It helps your business to grow sustainably

If you feel secure about your business, and you’re reassured that your cash flow isn’t going to be impacted by a major creditor failing to keep up their end of the contract by paying you on time, then you’ll have the peace of mind and the confidence to expand your business. TCI lets you deal confidently with new clients, generating more interaction and a greater level of trust, without impacting your business’ security or its financial future.

4. It gives you cash flow security

Interruptions of cash flow, especially if the amount is substantial, can put a real strain on your business and its ability to grow and move forward. The most common reason for cashflow issues is non-payment or late payment of outstanding invoices by customers. If a customer fails to pay then Trade Credit Insurance will cover the insured amount, as long as the policy terms are adhered to.

5. You don’t have to spend even more money on bailiffs

Chasing payment through the courts can be a long, drawn-out and ultimately very expensive business. By taking out TCI, you can minimise the financial cost of getting your money back, without having to spend even more on country court costs, legal costs, and the additional charges that a bailiff or debt collection agency will demand. That means you get all your outstanding money back, rather than just part of it.

6. It protects you when a business goes under

There have been some very big, high-profile business failures in recent months, and it’s never been more apparent that the collapse of a big company can have a huge financial impact on smaller suppliers and tradespeople further down the line. The British Insurance Brokers’ Association has described TCI as an insurance that can be “Invaluable to businesses”. Put simply, TCI is proving to be one of the most important forms of protection SMEs can have in what is an increasingly turbulent business marketplace.

7. It encourages repeat business from existing customers

Knowing that you have financial protection in place means that you can develop stronger and more profitable partnerships with your existing customers. Demonstrating this level of trust to your customers encourages them to deal with you repeatedly.

8. It’s available to everyone

Trade Credit Insurance is available to everyone, whether you’re a one-man-band or are running a multi-national company with both UK and overseas offices. There are degrees of flexibility when it comes to exactly what is covered, so it can be a single transaction (especially if it’s a large amount) through to a group of regular customers, or ‘whole turnover cover’, which covers all customers. The more you want to cover the more your insurance will cost, but you can also narrow it down to cover credit guarantee, delivery guarantee, or supplier default as necessary.

Find out more

If you run a business and want a little extra peace of mind, Trade Credit Insurance could be exactly what you’re looking for. We can quote for an individual trade credit insurance policy or include it as part of your complete business insurance package. You can complete the form below or call us on call us on 0117 955 6835 to get your free detailed quote.

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