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Wednesday 22 September 2010

The Credit Insurance Market for Businesses

The continuing fallout from the Credit Crunchhas had serious implications for millions of businesses when dealing with other trading partners and has raised the profile of the desirability of Credit Inisurance to protect your business from default on debts owed to you.

A Credit Insurance policy can provide your business with protectioon against non-payment for goods or services due to the failure of a customer to pay their bills. Credit Insurance can minimise bad debts and allow your business to expand your sales, safe in the knowldge that you will be paid. By identifying exactly which of your current and potential customers are sound credit risks you can concentrate your sales effort on customers who offer the best prospects for growth. The advanced credit checking facilities provided by credit insurers can therefore be used as a proactive tool to grow your business.

For most companies over 40% of current assets are made up of money owed for goods and services provided on credit terms. If this is not insured, then there is the potential for a disastrous loss in the future.

Generally speaking, Credit insurance falls under the following broad cover options:
(1) Domestic Credit or Whole of Turnover Domestic credit insurance
This provides cover within the business' local domestic market against bad debt losses caused by insolvency and/or protracted default for a single purchaser or the entire portfolio of receivables (whole turnover). Policies are usually structured with a first loss of £500 to £1,000.
(2) Export Credit Insurance or Whole Turnover Export Credit Insurance
This provides cover for international export sales for a variety of risks including insolvency, protracxted default and political event in the foreign country. Cover is available for a single overseas buyer or for an entire portfolio of foreign receivables (whole turnover).
(3) Combined Domestic & Export Credit Insurance
This is available for businesses trading in both the domestic and export market.
(4) Pre-Delivery Coverage
This is designed for situations where the goods are made to order. It protects against the insolvency of the buyer and/or political default or political frustration.
(5) Specific Account Credit Insurance
This covers receivables for a single specified customer, normally the largest account the business has if they are heavily dependent upon one company. Cover is often provided for insolvency only.
(6) Key Account Credit Insurance
This offers cover against business insolvency and protracted default for a selection of companies of between 2 and 20 of the largest customers. These policies usually carry an excess.
(7) Catastrophe Credit Insurance
This is for companies with an annual turnover in excess of £10 million and with established and effective credit control procedures in place. The insurers set an annual aggregate deductible in excess of which claims are paid. The deductible is set at a level of anywhere between £25,000 and £100,000 for the year.
(8) Global Credit Insurance
This is designed for multi-nationals to cover all of the divisions on a Whole Turnover or Catastrophe basis

85% of the Credit Insurance market is catered for by 3 companies, namely Euler Hermes, Atradius and COFACE. The remainder of the market is catered for by companies such as Ace Europe, Chartis, CIFS, HCC International insurance company Plc, QBE and Zurich.

Creidt Insurance could prevent your company being drawn into major debt difficulties in the event of the failure of a major company and the knock on effect that that entails. It can also be used as a tool to target your sales towards companies that are more likely to grow and thereby improve your own company's sales performance moving forward.

If this is an aspect of your own company's overall insurance portfolio that would be of interest to you please contact me.

1 comment:

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