Buying Trade Credit Insurance
Trade credit insurance is available to businesses of all sizes, from SMEs to large corporates and international businesses across any sector that supplies goods or services on credit terms.
It can be obtained by companies trading within the UK as well as internationally. As trade credit insurers help customers manage risk by providing guidance and advice, many are able to expand into new markets. Businesses can buy trade credit insurance for their entire portfolio of customers or for individual accounts.
Different types of product are available to suit each type of business:
Single Risk
A policy that covers an isolated single risk. This policy is relevant if the policyholder is exposed to a particular market risk, such as an exceptional transaction or when cover is demanded by the bank financing the transaction.
Export
A policy that is specifically designed for exporting policyholders, and provides additional cover for a range of risks such as new import restrictions, war, inconvertibility of exchange, that may arise as a result of the actions of the policyholder’s customer or a third party government.
Multinational
A policy that provides multinational group-wide or worldwide cover under the same conditions, irrespective of the location of the business units.
Political Risk
A policy that covers inconvertibility of exchange, contract frustration (for example, by civil war), contract cancellation, import and export restrictions, etc.
Excess of Loss
A policy that covers for exceptional losses over and above the normal level of bad debt by setting an aggregate first loss for the whole policy period. It is sometimes referred to as a “Catastrophe policy” aiming to secure the policyholder against the failure to pay of major customers.
If you are interested in taking out trade credit insurance you can purchase a policy through a number of specialist trade credit insurance brokers. Their knowledge can help businesses take out the most appropriate cover for a business’ needs for the best price.
The British Insurance Brokers Association (BIBA) can help you find a suitable broker through their ‘Find Insurance’ service. This can be accessed online at www.biba.org.uk or by calling 0370 950 1790.
During the application process, you will be asked a variety of questions about your business and trading practices. Some information that insurers will ask about during the application process include:
Insurable turnover
You will need to indicate how many sales are made on credit per year and confirm the number of sales made on credit for the previous period and year to date. You may also be asked for the previous year’s turnover.
Trading sector
Which sector you trade in and who your customer base is.
Past loss history
Details of any bad debts you have incurred from customers and any overdue accounts currently on your books.
Credit control details
What steps you usually take to collect receivables. For example, how many days after invoice do you follow up, when do you put a stop on the account or when do you normally engage a debt collector.