The post-pandemic business landscape has been challenging for many. Even if your business has remained buoyant amid the global crises, it is still vulnerable to the financial instabilities of other companies. Bad debt is an age-old issue but one that has never been more prevalent. Trade credit insurance is a simple way to mitigate the risk of the non-paying client, allowing you to trade with confidence, both locally and internationally.
What is trade credit insurance?
Trade credit insurance protects you should a client fail to pay an invoice for products or services your company delivered or if they pay later than your contract dictates. Insolvency is growing. If a company that owes you money goes bankrupt, trade credit or debtor insurance ensures you won’t be left out of pocket.
Importantly, it also allows you to trade confidently, helping you make decisions to grow your business during these difficult times.
Types of trade credit insurance cover
Trade credit insurance covers two risk categories:
- Commercial risk – the risk of your customers being unable to pay you due to a default or insolvency.
- Political risk – non–payment that is out of your customer’s or your control and caused by political events such as war and revolutions, economic events such as currency shortages, and disasters such as earthquakes or tsunamis.
Who benefits from debtor insurance?
Debtor insurance is not only used to protect larger companies’ cash flow and receivables but is also an invaluable asset to small businesses. The backbone of the economy, small businesses need to be able to trade without fear of bad debts and this specialist coverage can facilitate that.
Use cases
Would your business benefit from trade credit insurance? There are a few common business scenarios where this coverage can be especially beneficial:
- You’re struggling with late or non-payment of invoices. If slow payment of an invoice leads to detrimental cash flow issues, trade credit insurance can prevent this late payment from escalating financial difficulties within your business and the wider supply chain. If a client fails to pay completely because of their own cash flow issues or insolvency, you’ll be able to stay afloat with this coverage.
- A large proportion of your earnings come from just one or two clients. If your leading source of income were suddenly to fold, what would happen to your business? Sometimes, a company can’t help but place all its eggs in one basket, but when this is your business structure, provide a financial safety net with insurance.
- You’ve received a huge order. Receiving a large order is a boon for your business, but the fear of non-payment may quickly creep in. You’ll need to buy extra stock, hire more staff, and risk your cash flow – so what will happen if they don’t pay? Taking out coverage for bad debt will allow you to accept larger orders with confidence. Your insurance provider will help by conducting a thorough risk assessment and offering cover should the customer still fail to pay.
- You’re dealing with new or international clients. If faced with the unknown, it can be hard to channel your finances into products and services that may not be paid. When you’re still forming a business relationship, let trade insurance assist by providing both the risk assessments and financial cushion that give you the space to trade in good faith.
- You have limited assets to deal with bad debts. Many small businesses have little to no financial assets to counter a significant non-payment. If one sizeable unpaid invoice would leave you unable to pay staff or suppliers, avoid the collapse of your business with trade credit insurance for small business
Trade credit insurance: Facilitating growth and mitigating risk
Grow your business safely and with confidence by mitigating your risks with trade credit insurance. As the use cases demonstrate, this type of coverage allows you to say “yes” to those larger orders and to reach out to and make deals with new and overseas clients.
A trade credit insurance provider does more than simply pay when your clients don’t. They allow you to extend credit by monitoring your customers, using tools such as public records, financial statements, and information provided by other businesses that trade with your customer. Furthermore, your insurer can provide information to your bank that helps secure the financing you require to keep your business moving and expanding.
Benefits that help your business to grow
- Your bills will be paid and your cash flow will be protected.
- As well as peace of mind, it also gives you the confidence to extend credit to new customers, which will help your business to grow.
- It can make it easier to access additional funds because it gives banks more confidence in your business.
- It reassures other businesses in your supply chain, which will know your company is effectively managing risk. That can mean more or bigger orders.
Matching your business needs
- Cover all your customers or individual accounts.
- Choose to cover the commercial risk, political risk, or both.
- Policies designed to protect SMEs and larger organisations.
- For companies trading in the UK or internationally.
Frequently asked questions
How do you calculate the cost of trade credit insurance?
Several factors are used to calculate the cost, including the size of your business, the financial stability of your clients, and the trading limits you require. Insurers will often use a percentage of your sales to calculate your premium. You may wish to budget around 0.5% of your sales for trade credit insurance.
Are businesses required to take out trade credit insurance?
No, but some banks and lenders will only finance a business that holds this cover.
Can I tailor a debtor insurance policy?
Yes! It is essential to find an insurer who will base a trade credit insurance policy on your trading behaviour and who you trade with.
Park Insurance is ideally placed to tailor your business’s bespoke insurance policy. By taking the time to learn about your company, we can offer the right coverage to keep you protected from bad debt. Call one of our friendly insurance experts today to find out how we can support your business.
Trade credit insurance from the experts
As a specialist insurance broker, we’ll give you expert guidance on what your business needs to survive and thrive. We can quote for an individual policy or include it as part of your complete business insurance package. You can complete the form below or call us on 0117 955 6835 to get your free detailed quote today.