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Winter 2022 45 www.hae.org.uk www.eha.org.uk C redit Insurance is designed to protect businesses if a customer does not pay, becomes insolvent or a supplier does not deliver or becomes insolvent. It can also keep an eye on your customers’ credit to give advance warning and help reduce exposure to potential bad debt. So if you are not paid or a contract is not completed and you are out of pocket, the insurer will chase the debt on your behalf. If that debt is not recoverable, then the insurer will pay the loss (or more normally 90% of the loss). In addition, the insurer will monitor the credit status and stability of your supply chain and warn you if a business looks vulnerable, giving you the opportunity to act in advance. Having the knowledge that your credit risks are reduced allows you to operate with more con dence. It’s not all doom and gloom and looking for the bad debt, though. Credit Insurance can also be used as a tool to assist with increasing your sales and pro t. One example is when a company’s nance department had restricted a credit line to a customer to £100,000. It then purchased a credit insurance policy and the insurer was able to approve a limit of £150,000 on that same customer. With a 15% margin and an average day’s sales outstanding of 45 days, the company was able to increase its sales to realise an incremental annual gross pro t of £60,000 on just that one account. ARE YOU AT RISK FROM YOUR CUSTOMERS? Bally Mali, Sales Director, Towergate Insurance Brokers, advised: “In these turbulent times, whether your supply chain and customers are local or international, your business is likely to be a ected by the current economy. You may nd your supplier is being a ected by their own supply chain, impacting on your deliveries; or your customers may start to delay payment beyond the credit terms agreed. Consider what happened with Debenhams, Carluccios and Cath Kidston, all strong brands that are calling in the administrators. is is why you need to understand the protection Credit Insurance provides for the longevity of your business.” You may think that your business model and those of your customers mean you are ‘safe’. It is worth acknowledging that, in a ‘normal’ economy, more than 70% of businesses su er bad debts, with more than 50% of UK insolvencies involving well established, prompt-paying customers – and up to 40% of a company’s assets are tied up in the debtor book. Considering the the impact of Brexit, the Budget and Covid-19 are still mostly unknown, there has never been a more pertinent time to take steps to protect your business. << Peace of mind and a tool for increasing profits are amongst benefits. WHAT IS CREDIT INSURANCE AND WHY IS IT SO IMPORTANT?