1. What is trade credit insurance?
Trade credit insurance is used by businesses to protect themselves from unexpected bad debt. If you offer credit terms to your customers, it’s important to have a plan in place to mitigate against the risk of unexpected non-payments or delayed payments. That’s where trade credit insurance comes in. In the event that one or more of your customers/clients cannot pay you, often as a result of insolvency or going into administration, trade credit insurance will cover your losses, protecting your cash flow and ensuring that someone else’s failing doesn’t negatively impact your business.
2. The importance of having trade credit insurance
Trade credit insurance plays an important role in the current global economy, where businesses frequently trade on credit terms. It makes international trade safer, as the risk of non-payment is covered by the insurer. This allows your business to confidently trade, both in the UK and internationally, safe in the knowledge that your cash flow is protected in the case that a client cannot pay an invoice. Not only this, but having insurance allows you to offer more favourable credit terms to customers, strengthening your relationships and ensuring the broadest range of customers can benefit from your credit service.
3. The benefits of having trade credit insurance
There are myriad benefits to having trade credit insurance, here’s 10 of the most important reasons you should consider trade credit insurance for your business:
- Protection - Fundamentally, trade credit insurance can replace money that is lost in the event of a bad debt, meaning that your business doesn’t suffer the mistakes of others.
- Peace of Mind - Running a business can be stressful; there’s already a lot to think about! Knowing that your credit offering is protected helps dramatically reduce daily stress, allowing you to trade with confidence.
- Efficiency - Insurers can provide up-to-date information that allows you to make the right decisions quickly and increases the efficiency of your business.
- Profitability - Trade credit insurance allows you to improve profitability by allowing you to increase your exposure to both new and old customers. As your risk is mitigated, you can offer credit terms more liberally, too, making slightly riskier investments more viable.
- Funding - A trade credit insurance policy provides greater access to finance by improving a business' relationship with the banks as they know you are protected.
- Stay Competitive – If you don’t offer credit, your competitors will. Trade credit insurance gives you an edge, though, as any uninsured competitors have to deal with the repercussions of bad debts, whereas you do not.
- Cash-flow - Trade credit insurance complements and works with your existing credit control procedures to improve day sales outstanding.
- Growth - Your business can expand at a faster rate, as trade credit insurance enables you to confidently deal with new clients and increase credit lines to existing ones.
- Information - A trade credit insurance policy provides greater access to customer information. The more information at your disposal, the better business decisions you will be able to make.
- Confidence - A comprehensive trade credit policy encourages your business to enter new markets; take that chance you’ve always wanted to, and keep your cash flow safe while doing so!
4. How to choose the right trade credit insurance for your business
When looking for trade credit insurance, you should consider several factors, including:
- The level of cover needed
- The premium cost
- The terms and conditions of the policy
- The reputation and financial stability of the insurance provider
Take care when choosing a trade credit insurance provider. If you’re unsure on who to go with, or simply want some advice about trade credit insurance, don’t hesitate to get in touch with our trade credit insurance experts here at PIB.
5. When does trade credit insurance trigger a pay out?
Trade credit insurance can pay out both during insolvency, or administration. As a general rule, claim proceedings can be initiated when:
- A receiver or administrator has been appointed in one of your clients’ businesses
- A collective arrangement with creditors has been made
- Placing a company under protection of the courts
- Any corresponding situation created by relevant national legislation
- Insolvency proceedings have been initiated, filed or commenced
- Liquidation proceedings have been initiated
Worth noting: many people think that trade credit insurance only pays out when a client becomes insolvent, but this isn’t the case! If one of your clients/customers goes into administration, and isn’t able to immediately repay their debts, your insurer will often pay out.
Where can you get trade credit insurance?
The quickest, easiest way, is to contact our experienced Trade Credit team at PIB Insurance for guidance on finding a trade credit insurance policy that suits your needs. Finding the right lender for you can be a stressful process. That’s why we take the time to learn your unique needs, before recommending both the best type of trade credit insurance for your needs, all while matching you with the most appropriate insurer. It’s our job to take the stress out of searching for the best insurance. Get in touch with our friendly team today – we’re here to answer any questions you may have, and to help you get insured as soon as possible.