The growing value of credit insurance

06/03/2023

Any business which sells goods and services on credit terms should have measures in place to protect their cash flow against the risk of customers paying late or not at all. But with company insolvencies increasing by 57% year-on-year during 2022, safeguarding your business is more important than ever.

The pressures facing businesses of all sizes at present have been well documented. From inflation to interest rates rises, each one is placing an intense strain on cash flows across the country.

The result isn’t only that many more businesses are failing than we’ve seen over the past few years, but also that those which are struggling are prioritising their finances by waiting longer to pay suppliers.

Both of these outcomes can be disastrous for any business which trades on credit terms, creating cash flow problems which didn’t previously exist and exacerbating them where already present.

This is where credit insurance, or bad debt protection, can be an incredibly useful tool in the armoury of businesses – both to protect their cash flow and to gain peace of mind when offering credit to customers.

What is credit insurance?

Much like you’ll have buildings insurance to protect your finances should your office catch fire, credit insurance safeguards cash flows in the event customers fail to pay your invoices.

Should an invoice become aged or a customer enters insolvency proceedings, credit insurance companies ensure that you get paid for any goods or services you have supplied, subject to a designated credit limit.

Policies can cover your entire debtor book, key customers or just single debtors with an adverse credit history, providing flexibility and the cover you require. They can also provide protection against the credit risks associated with overseas trade, and can even include political risk insurance.

Bolt-on support

Bear in mind that while credit insurance can be supplied as a standalone policy, it can also be incorporated into some finance facilities which provide additional benefits for businesses which trade on credit terms.

Invoice finance, for instance, enables businesses to access up to 90% of the value of invoices within 24 hours of their issue (the remainder is forwarded when customers pay, minus the fee for using the service). By securing a facility with bad debt protection, which is known as a non-recourse facility, you can benefit from better cash flow and reassurance that your invoices will be paid even if your customers fail.

Some facilities will even see the lender credit check your customers and provide a dedicated sales ledger management facility, giving you back the time and resource to focus on running and growing your business.

Another advantage of credit insurance and bad debt protection is that it may enable you to negotiate favourable terms with suppliers, given policies will reduce the impact of a bad debt on them.

So if you don’t currently have cover in place, the current economic landscape means now might be the time to explore your options.

Whether you’d like to hear more about credit insurance, invoice finance or both, our sister company, Hilton-Baird Financial Solutions, can help. As a specialist commercial finance broker, they have over 25 years’ experience of helping businesses to identify the most appropriate facilities for their requirements.

Call 0800 9774833 or request a call back to speak to their team, or find out more about the benefits of working with a broker.