Trade credit insurance offers financial protection to traders against loss of incoming revenue from credit arrangements. When your customers purchase goods or services on credit, you’ll typically have an agreement in place for them to settle their debt with regular payments.
In some cases, however, customers might not keep up with their payments, potentially causing disruption to your expected cash flow. If, for any reason, the necessary payments aren’t made at the agreed time, your trade credit insurance can provide a lifeline so as not to leave you and your business high and dry.
Whether your customer withholds payments as part of a dispute or they go bankrupt and are unable to keep up, your business can continue uninterrupted thanks to the financial support from your insurance. In general, a trade credit policy will pay out a percentage of the outstanding debt that depends on the type of cover purchased.
Policies can be flexible and allow business owners – as the policyholder – the option to cover selected high-value customers or all accounts on your books. The most common type is Whole Turnover Cover, which typically covers the entire buyer portfolio.
There are two main types of risk that a typical trade credit insurance policy may cover. These types focus of covering the risks that commercial and political factors can pose. Each of these elements has the capacity to disrupt your business and your finances, especially because they’re often unavoidable and completely out of your control.
With standard protection against these risks in place, businesses can benefit from having the peace of mind to continue operating as normal. Cover for commercial and political hazards can encompass various events that could affect your cash flow:
Commercial risk typically includes times when customers are unable to pay their outstanding balances for various financial reasons. Customers will usually open a credit account with your business based on the agreement that they’ll be able to make the necessary payments without using collateral as backup. However, if they should ever face bankruptcy or insolvency, commercial risk cover can step in to minimise your losses.
Political risk covers a customer’s inability to pay if it comes as the result of wider political events well beyond their (or your) control. While they may be highly unlikely, events like a political revolution, war or sudden economic downturn can greatly affect your business and its finances. This can even include natural disasters that may cause significant disruption to the economy.
To begin with, you’ll need to decide whether you want to identify certain customers to cover yourself for, or whether you require a policy that applies to all trade accounts in your portfolio. Either way, your insurance provider will need to evaluate how credit-worthy your customers are and specify the maximum amount they’d be prepared to compensate you for a customer’s lack of payment.
From there, you can continue trading as you normally would, secure in the knowledge that your business won’t face a massive struggle in the event of a customer not keeping up with payments. Provided you can notify your insurer with as much information as possible about any non-payment, they will be able to investigate the situation and indemnify you for up to the insured amount as set out by your policy terms.
Your cover provider will also keep you up to date in case of any changes to your policy as and when they may occur. This could include changes to your policy’s terms and conditions, as that could raise or lower credit limits of your customers.
At Arkwright, we have a team of brokers specialising in various forms of business and liability insurance who work alongside a diverse panel of insurance providers to find the right policy for you and your business. By getting in touch with our team, you can benefit from having a trade credit insurance policy that’s tailored and optimised to meet your exact needs.
Call Arkwright today on 01204 392 525 to speak to one of our experts, or click the “Get a quote” button to provide us with a few quick details to get started. From there we can discuss your trade credit insurance requirements and find you the best possible policy at the lowest possible premium.