Protecting your cashflow

With so much business uncertainty around the country due to the current trading restrictions that have been put in place to protect the population during the Coronavirus pandemic there has never been a better time to consider credit insurance.

Credit insurance, like any other insurance, is designed to transfer the risk of an unknown loss into a known cost. In this case the risk of a customer becoming insolvent and not paying their invoices. A more detailed explanation can be found here. With so many business effectively being shut-down due to the Covid-19 we spoke to Laurence Hill, Director of our sister company, S-Tech Insurance Services Ltd., a specialist in credit insurance.

"Clearly no one saw this crisis coming which is precisely what credit insurance is about. Your past trading history and credit agent reports will no longer assist your current and future risk assessment. Businesses are now venturing into the unknown as far as credit risk is concerned and protecting your cash flow should be one of your most important considerations right now and in the foreseeable future.

"A credit insurance policy covers against customer insolvency and default regardless of the reason behind the customer’s failure to pay you. i.e. the present crisis does not preclude insolvency and default claims. Good credit risk management is all about protecting your cash flow and not over extending credit to weak companies. If the unforeseen happens and you don’t get paid, due to insolvency or default, you can make a claim on your policy.

"Typically, 90% of lost income can be recovered when a claim event arises. Whist insolvency is a clear event (CVA, administration and liquidation), default is not."

"Default claims are paid by insurers when a customer has not been able to pay after a specific number of days e.g. 30 days terms plus an allowance of late payment of say 60 days, then an allowance for 3rd party debt collection / legal action of 60 days. Policy wordings in this area vary widely but most insurance policies contain a default clause.

"Underwriters remain open for business but will be selective regarding the risks they take on and the limits they are prepared to write at the moment but the markets remain open for business and we can advise you of the best policy for your needs. It will also be vital to fully understand credit risk properly as we emerge from this crisis, avoiding the weak customers from the strong ones. By focusing your efforts towards the good risks, you can emerge from this crisis in a sound, comfortable position."