The recent budget has added new pressures on business finances, with rising minimum wages and increased National Insurance contributions. Companies are already contending with challenges like inflation, high interest rates, and soaring energy costs, and these added burdens may make it even harder for some to stay afloat.
One way many businesses protect themselves from the impact of customer insolvency and bad debt is through credit insurance. But what does credit insurance actually cost, and what are the benefits of having this protection in place? Let’s take a closer look.
What Does Credit Insurance Cost?
Credit insurance is often more affordable than people expect. Strong competition among insurers keeps premiums low while maintaining a high level of product options. Policies have also become more adaptable, allowing businesses the flexibility to insure anything from their whole debtor book, to a select portion of Key Buyers, or a single Buyer’
Whole Turnover Cover
For whole turnover coverage, underwriters consider your customers’ risk profiles, the volume of insured sales, and your past bad debt history. Currently, the average premium rate is around 0.2% of turnover for full ledger coverage. For example, a company with an insurable turnover of £8 million might pay a premium of around £16,000 per year, which is typically split into manageable, interest free, monthly payments. Pricing can vary dependent on trade sector and loss history.
Key Buyer Cover
This selective policy focuses on a few high-value accounts where customer insolvency would have a significant impact on your business. Due to the selective nature of this coverage, insurers generally apply a slightly higher premium rate, usually between 0.25% and 0.3%. This option allows businesses to protect their most critical relationships without insuring their entire customer base.
What are the Benefits of Having a Credit Insurance Policy
- Protection Against Insolvencies and Bad Debts
- The UK has experienced a significant rise in company insolvencies, with challenges like rising interest rates and inflation placing pressure on many sectors. Credit insurance can provide critical protection for businesses that could otherwise suffer financially if key clients fail to pay.
- Supports Growth
- For companies looking to grow, credit insurance can provide peace of mind. Increasing exposure to existing clients or taking on new customers can be daunting. Having protection in place will give confidence to increase sales to existing clients and take on new customers.
- Improved Access to Financing
- Banks and lenders often look favourably on companies with credit insurance, as it reduces the risk profile of the business. Having a credit insurance policy can make it easier to obtain loans or better credit terms because lenders view the company’s receivables as secure.
- Better Business Intelligence on Creditworthiness
- Credit insurance providers offer credit assessment services as part of their policies, allowing businesses to make more informed decisions about which customers to extend credit to. This added layer of insight can help avoid extending credit to high-risk clients, improving overall financial health.
How to Choose the Right Credit Insurance Policy
When considering credit insurance, it’s essential to find the right policy for your business’s unique needs. Here are a few questions to guide your selection process:
- Do you want coverage for all your clients or specific high-value accounts?
- Are you restricting trade or turning away new opportunities?
- Are you looking to cover both domestic and international transactions?
Your answers to these questions can help you select the right level of coverage and the right policy structure for your business.
Final Thoughts
In today’s economy, protecting your business against unexpected client insolvencies or prolonged payment delays is more crucial than ever. Credit insurance can be a valuable tool for any business that relies on extending credit to clients, offering a safety net that secures cash flow, improves access to financing, and provides insights into customer credit risks.
If your business doesn’t currently use credit insurance, now might be the time to explore the benefits it can bring. By adding this layer of protection, you can ensure your company is more resilient, more informed, and better positioned for growth in a challenging and ever-evolving market.
To explore the options available to your business, visit www.comparecreditinsurance.co.uk