How it works
Bad debt protection, or credit insurance, is a mechanism whereby companies can cover themselves against the possibility of invoices not being settled by their customer base.
Clearly, this safeguarding gives business owners peace of mind if a customer doesn’t pay their bills, whether that’s due to insolvency or failure to pay within the agreed credit period. This can be bolted on to an Invoice Finance solution easily, whether it be a Factoring or Invoice Discounting facility and of course acts as great deal of comfort for the company’s funder.
Non-payment of invoices can have serious cashflow implications for businesses, and this negative impact on income may in turn affect relationships with suppliers and other creditors.
In most cases, organisations will be able to use their insurance policy to claim up to 90% of the value lost through unpaid invoices. It can also be tailored to encompass different risks, from work in progress to binding contracts.
Exporters can also protect themselves against political risks.
What are the benefits?
As well as reassurance and peace of mind over payments, other benefits of having bad debt protection in place are:
- It’s potentially easier to secure trade finance: Lenders are often happier to provide trade finance, and on better terms, if a business has this cover.
- Protects cashflow: Clearly, being able to collect the funds you are owed is a big help in staying on top of cashflow.
- Better trading terms with suppliers: Suppliers who know you have taken these steps to protect your business are more likely to want to negotiate improved terms.
What does the price of policies depend on?
As with other kinds of cover, the price is linked directly to the amount of turnover you are looking to protect, and the risks to which your business is exposed.
Your industry, your customers and their locations, plus your own track record in credit management will also all play their part when it comes to cost.
Why might I need this now?
The Covid-19 situation has clearly led to huge uncertainty for businesses across many sectors, with numerous companies suffering from financial struggles. So now could be an excellent time to think about protecting yourself against the prospect of bad debts.
And while no one thinks twice about covering their physical assets such as stock and buildings, protection against the debtor book can often be overlooked.
It’s also a good time to be thinking about this because the government announced recently that it would temporarily guarantee business-to-business transactions backed by debtor protection policies, via a temporary reinsurance arrangement. This was introduced when insurers started to contemplate withdrawing cover and increasing premiums.
How we can help
At Invoice Finance Connect, we are extremely well placed to discuss bad debt protection with you and connect you to the market leading providers within the sector. We have access to an extensive range of solutions according to individual needs, plus many years’ industry experience under our belts.
Talk to us even you already have cover; we may be able to help you secure a better deal. Let us discuss your options as we all adapt to difficult times. Whatever your particular needs or situation, get in touch today.