What would happen to your business if bad debts were incurred?
One small customer not paying their account may not be an issue. But what if multiple small customers, or a larger customer was unable to pay their debts? This could significantly affect your business.
It is important to have protections in place so that in the event a debtor does not meet its obligations, your business can still recoup its money. Taking out trade credit insurance is one way you can do this.
Who should consider trade credit insurance?
All registered businesses that sell goods and services on credit terms, such as 30 days to pay, should consider trade credit insurance. This includes businesses that trade domestically and internationally.
Whilst this cover is of most use for the construction, mining, transport and civil industries, exposure is certainly applicable for any business, particularly those who rely on one or two main entities for the majority of their work.
What can it cover?
Depending on the policy, trade credit insurance can be either:
- Comprehensive cover: protecting your entire credit portfolio, including domestic and export customers
- Excess of loss: suitable for businesses with strong internal credit management processes who want cover for exceptional loss across their entire portfolio
- Key account: for clients requiring protection on their largest clients
- Single buyers: for single client coverage
Some insurers will offer bonus services with trade credit insurance, such as:
- Credit reporting services
- Revision of your contracts to ensure a party who is a bad payer must pay recovery costs
What isn’t covered
There are exclusions. There is also often a deductible or excess and limits on cover, so check with your insurance broker.
In addition to adopting trade credit insurance, here are some other things businesses can do to reduce their risk of bad debt:
- Conduct credit checks on new customers
- ensure that you have your Terms of Trade signed and agreed before the business transaction takes place
- Consider upfront payment from your customers
- Automate your payment and overdue notifications
- Catch credit problems early and record all details following up payment – this can be helpful in resolving matters
- Employ debt collectors when necessary
To find the best trade credit insurance for your business, contact our team of experienced insurance brokers today.