Credit Insurance Unravelled: We have asked the experts to give you the lowdown on how credit insurance could help your business.

So what is credit insurance? And how can it help protect your business? We are here to explain all!

In this article our CEO Steve Timmis asks Martyn Curnock of Euler Hermes to answer questions on Credit Insurance and how it can help SME’s protect their businesses. Martyn discusses with Steve the benefits of credit insurance and specifically Euler Hermes products.

What does credit insurance cover?
  • Credit insurance safeguards you against the failure of your customers to pay their trade credit debts, due to customer insolvency or cash flow difficulties.
  • Trade receivables are goods or services despatched & invoiced on short-term credit terms 30 – 90 days.
  • Credit insurance covers the risk of any non-payment when a business offers trade credit to a customer. It is an essential risk management tool, that enables companies of all sizes to trade with confidence at home or abroad.
Does credit insurance cover 100% of the bad debt?

If a customer goes into liquidation, 76% of the time a business will get nothing. In the course of a year the average company will lose more than three of its active customers because of financial distress, insolvency, administration or receivership. A credit insurance policy will return 90% of the monies owed if an approved customer enters into insolvency.

If the customer is however still trading but can’t pay due to cash flow issues then Euler Hermes’ in-house collections team will try and collect the debt on your business’s behalf. The collections service is offered as a “no-win, no-fee service” but if we are successful the business will retain 99% of the insured debt.

Is credit insurance expensive?
  • Consider how disastrous a bad debt of £50,000 would be to your business, compared to a typical cost of £150 to insure the same invoice, based on a typical whole turnover annual premium.
  • Perhaps you’re not worried about the risk of bad debt because previous ones have been small, but what’s the guarantee the future will be the same?
  • Remember you can incorporate the cost of credit insurance into your quotes to clients, and spread the cost with our instalment options.
  • You can use utilize our extensive information to both target new customers and grow your existing client portfolio, knowing that your invoices are insured.
  • Your credit insurance comes as a package with our outstanding management services and information no-one else can provide. We can help you make money as well as protect you from losing it. A £100,000 increase in turnover, will cover a £10k premium at 10% margin, whilst insuring the original forecasted turnover at no additional premium increase.
  • Credit insurance is a cost you can plan, protecting you from non-payments and late payments that are unplanned problems.
Are there any sectors that are more difficult to get credit insurance for?

No any business who trades business to business on open credit terms would have the risk of non-payment and therefore credit insurance would mitigate that risk. Each credit limit is assessed on a case by case basis and based on the financial strength of that buyer.

When a bad debt occurs, who chases the debt in?

In the event of insolvency, our claims team will pay a claim within 30 days so no further action will be needed. When a customer is unable to pay then action would be taken by Euler Hermes in house collections team who will chase the debt on our clients behalf via a series of letters, emails and telephone calls. Once you have notified Euler Hermes that you have an overdue invoice, they will endeavour to collect the payment within 60 days. If they are unsuccessful, then an insurance claim will be paid, which is called protracted default. Our current collections and claims stats are:

• 82% of all domestic recoveries are collected at pre-legal stage
• >98% claims paid
• 70% of all claims paid within 30 days

Once I have cover is there any other costs that may be incurred?

Our fixed premium policies allow businesses to budget for the cost of insurance with no further costs. Claims will be made based on the policy structure, which can be tailored to reflect a business’s ledger or amount of risk a business would like to share with Euler Hermes. Just like any insurance policy there is an excess, example £1000, therefore any claims below this amount are excluded.

Can credit insurance help me get finance?

A credit insurance policy insures your receivables, which is typically the largest asset on a balance sheet. Banks and trade financiers like the security a policy provides as they typically will be using the insured receivables to decide on the value & cost of any lending.

Next steps

Here’s what Steve has to say following his chat with Martyn

‘There are clear advantages for SMEs to look into credit insurance, and probably now more than ever. The fallout from COVID is far from finished and a credit insurance is just one way for you to protect your income streams. Clients should regularly credit check their customer and impose trading limits to ensure they are not overly exposed, credit insurance allows them to trade with peace of mind. If you would like to know more about credit insurance let us know on 03302233660 or contact Martyn directly on martyn.curnock@eulerhermes.com or via 07879 600 516.’