Credit insurance is a policy that protects you against the non-payment of your credit account customers either through insolvency/ bankruptcy, which most people fear, or protracted default. The latter means that your customer simply does not pay but does not go bankrupt, more commonly known as the can't pay/won't pay syndrome.
A credit insurance policy actually brings you three products in one; it is a credit management tool. Firstly the credit insurance companies have their own Internet based credit checking systems, which enables you to obtain an instant answer in checking out names that wish to do business with you. This is linked so that directly the mouse is clicked following an enquiry, a credit limit is established for that name on the policy, the main part of the product set. The policy covers against credit account customers not paying as explained above. The third part, available from most of the insurers, is a debt collection service whereby the insurer will pick up and chase the debt on your behalf after a set period of time that feeds off your own credit control procedures.
Although a whole turnover policy remains the most popular cover, credit insurance is more flexible these days. It is possible to insure just those names that would hurt you if they could not pay, say your top ten names or outstanding balances over a certain value. Companies take out a policy of this type, which they refer to as catastrophe insurance. If any of the top names are considered undoubted then these can be excluded.
Single risk cover i.e. one name only, is also available on a case-by-case basis but the insurers are selective. They would be looking for a minimum exposure of £100,000, although one will go down to £50,000. Useful if you have one dominating customer, i.e. all your eggs in one basket. A policy of this type only covers insolvency/bankruptcy.
The cost of credit insurance is a minimum of £3,000 per annum, which is usually paid for over 12 monthly payments. A £1 to 2 million turnover company would pay between £4,500 - £6,000 per annum, depending on their loss ratio and market sector, £2 to £3 million, £6,000 - £8,500 and so on. Whilst you may raise an eyebrow at the cost, can you afford to be without it? Whilst companies can recover from commercial setbacks a good number are brought down by bad debts, it can make the difference between having a business or not.
It has been calculated that 40% of a typical company's assets are tied up within the debtor book, yet this valuable asset is often completely ignored when it comes to mitigating risk. Call us to discuss for impartial and FREE advice or go to our Contact Us Page to find out how we can help.