Time to Think About Credit Insurance

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It is a sad fact that the credit crunch and general economic downturn have increased the risk of company insolvencies and receivership. While credit insurance can help to reduce the financial impact if your customers default, being aware of which of your customers may be at risk can help to reduce your exposure, regardless of whether or not you are covered by credit insurance. Early warning signs include:

  • 'On time' payers starting to slip behind
  • Outstanding payments taking 45 days or longer
  • Requests to extend terms of credit
  • Switching from long standing suppliers or using a wider range of new suppliers
  • Over-dependency on a small number of customers
  • Suffering an increase in bad debts
  • An increase in customer and contract disputes (delaying tactics)
  • Extending or increasing borrowings
  • The sudden abandonment of new projects, premises extensions or new machinery orders with weak or  vague explanations
  • Evidence of final demands or writs
  • Pressure from HM Revenue & Customs due to late payments

Sometimes it is too late to spot the warning signs and the company experiences a bad debt.  Having credit insurance in place would absolve this debt. Although this is the most obvious benefit of credit insurance, less tangible advantages could prove equally important:

  • Real-time analysis of the financial state of customers – useful for sales forecasting and inventory control
  • Attracting finance should be easier and according to a recent study on average nearly 0.5% cheaper (Euler Hermes Credit Management Study 2006)
  • Credit insurance allows for a slick sales operation when offering credit to new prospects
  • The flexibility to choose to insure specific areas of your customer base (e.g. export ledger, top accounts, or even specific industries) means credit insurance can be very cost effective

Insurance will be provided through members of the Willis Commercial Network, who are authorised and regulated by the Financial Services Authority.

FP656

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