Trade Credit Insurance for UK Businesses
When you supply goods or services on credit, there is always a risk that a customer may be unable to pay what they owe.
For businesses with significant outstanding invoices or a reliance on a small number of key customers, one unpaid debt can have a considerable impact on cash flow.
Trade Credit Insurance helps protect businesses against losses caused by customer non-payment, providing greater financial confidence when offering credit terms to customers in the UK or overseas.
At W B Baxter, we can help businesses arrange Trade Credit Insurance that reflects the way they trade, the customers they work with and the level of credit risk they face.
What Is Trade Credit Insurance?
Trade Credit Insurance is designed for businesses that provide goods or services to customers on credit terms.
If an insured customer is unable to pay an outstanding invoice, for example following insolvency, a Trade Credit Insurance policy may provide protection against some or all of the resulting financial loss, subject to the terms and conditions of the policy.
Cover can be suitable for businesses of different sizes and across a wide range of industries, particularly where a significant proportion of revenue is tied up in unpaid invoices.
What Can Trade Credit Insurance Cover?
Trade Credit Insurance policies can be structured in different ways depending on the needs of the business.
- An entire portfolio of customers
- Selected key customers or buyers
- Individual credit risks
- UK customers
- Export customers and international trade
- Political risks associated with overseas trade
- Specific or exceptional one-off credit risks
This flexibility means businesses do not necessarily need to insure every customer in the same way. The most appropriate approach will depend on factors such as customer concentration, turnover, credit terms and the markets in which the business operates.
Supporting More Confident Credit Decisions
Trade Credit Insurance is not only about responding when a customer fails to pay.
Credit insurers can provide financial insights that help businesses assess customers, monitor credit risk and make more informed decisions when offering credit or entering new markets.
Protecting Cash Flow
For many businesses, unpaid invoices represent money that has already been committed elsewhere.
Materials may have been purchased, employees paid and services delivered long before the customer’s invoice becomes due. When that payment does not arrive, the business still has its own financial commitments to meet.
By protecting eligible trade receivables against insured losses, Trade Credit Insurance can help reduce the potential impact that customer non-payment has on working capital and cash flow.
Supporting Business Growth
Taking on a large new customer can represent an exciting opportunity, but it may also increase the amount of money your business has at risk. The same applies when entering new markets or beginning to trade internationally.
Trade Credit Insurance can help businesses approach these opportunities with a clearer understanding of the credit risks involved. Appropriate protection can provide greater confidence when extending credit to new customers while helping to prevent growth from creating an unsustainable level of financial exposure.
Trade Credit Insurance FAQs
When should a business consider taking out Trade Credit Insurance?
It is worth considering Trade Credit Insurance before a problem arises rather than waiting until a customer begins showing signs of financial difficulty. Businesses may choose to review their requirements when taking on larger contracts, increasing credit limits, expanding their customer base or becoming more dependent on particular customers.
What happens if a customer's financial position changes during the policy?
Credit risk can change over time. Trade Credit Insurance providers may monitor insured buyers and adjust their view of the risk where new financial information becomes available. This can give businesses an early indication that they may need to reconsider the amount of credit being offered to a particular customer.
How quickly can I make a claim for an unpaid invoice?
This will depend on the circumstances and the terms of the individual policy. Different requirements may apply depending on whether a customer has become insolvent or an invoice has remained unpaid for a specified period. Your insurer or broker can explain the relevant notification and claims requirements.
Will Trade Credit Insurance pay the full value of an unpaid invoice?
Not necessarily. Policies will usually specify the proportion of an insured loss that can be recovered, together with applicable credit limits, excesses and other conditions. It is important to understand these details when arranging cover.
Talk to Us About Trade Credit Insurance
If a major customer failed to pay tomorrow, what impact would it have on your business?
Our experienced team can help you understand your exposure to customer non-payment and explore Trade Credit Insurance options suited to your business.
Contact W B Baxter today to discuss your requirements or request a quotation.
The cover available and policy features will vary between insurers and policy wordings. Specific terms, conditions, limits, exclusions and eligibility criteria apply. Businesses should review policy documentation carefully and seek advice regarding their individual requirements.
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