18 July 2023

Trade credit insurance podcast

Keith talks to Des at Cat FM about the lesser known Trade Credit Insurance, and why this is becoming increasingly important for businesses.

What is Trade Credit Insurance?

Trade Credit Insurance is a Commercial Insurance that covers losses associated with bad debts coming from insolvency of a business’s clients.

Why is this important?

In 2023, business insolvencies are at the highest level since the 2008 financial crash. This is caused by slow economic growth, rising interest rates, the cost of living crisis, and the chronic effects on businesses of Covid-19 and Brexit.

Now is the time to be looking at these risks to your business and the potential of becoming a victim of a client going into liquidation and being unable to pay its financial commitments to your business. Trade Credit Insurance is often less well-known than other types of insurance, but it protects your balance sheet.

So how does it work?

A business will take out a trade credit insurance policy. As they work with new clients, they inform the insurer of the client and the credit value that they are looking to offer to this client. The insurer then carries out financial checks on the client and advises the amount that they are willing to insure up to.

If insurance is in place against a client, then throughout the course of the policy the insurer will keep the policy holder informed on any changes with their clients financial strengths, giving the policy holder peace of mind that their credit is secure. If the client gets into any financial difficulty, the insurers make the policy holder aware through credit monitoring intelligence.

If the client enters liquidation, and the payment doesn’t come in, then the trade credit insurer usually pays around 80-90% of the trade credit balance to the policy holder, meaning that they are not left with a large bad debt on the books.

The insurers also look to take on defaulted debts, meaning that even if the company does not enter liquidation, but they have decided not to pay their invoices on time due to cash flow or some form of financial difficulty, the trade credit insurer will pay the policy holder the vast majority of outstanding debt and take on the outstanding balance themselves to chase in the form of a debt collection service.

What are the main benefits of Trade Credit Insurance?

It gives the business peace of mind, but also can increase access to finance and funding, as having a trade credit policy gives confidence to financial lenders and shows as a positive risk factor. It also protects the shareholders of a business against loss of profits.

Another key benefit, is that the trade credit insurers offer comprehensive credit market intelligence, which helps with better decision making to confidently decide if a client will be able to honour their financial commitments.

How do I find out more?

To find out more about a trade credit insurance policy for your business, speak to your broker. Our team are available on 01270 758070 or email the team at enquiries@rkhenshall.com.

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R K Henshall & Co Ltd are Independent Intermediaries and are authorised and regulated by the Financial Conduct Authority. Registration Number: 308865. Directors: J.R. Henshall B.A.(Hons) ACII Cert CII (FS), A.J.Simpson ACII, A.Brown FCCA. Written quotations, policy terms, conditions and exclusions are available on request.
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