Insuring trade through challenging times – Trade Credit Insurance Update

Tysers Insurance Brokers |

COVID-19 temporarily forced many UK businesses to cease production and trading, placing them at risk. As lockdown restrictions loosen many surviving companies are left to resolve issues of liquidity.  

Martyn Locke, Trade Credit Insurance specialist, provides insight into how this protection may help :

If a business’s customers have been unable to trade for four to five months will they have sufficient funds to pay their invoices now?

It’s a growing area of exposure and, given the challenges many businesses are currently facing, it would seem prudent to consider how a Trade Credit policy can help mitigate the risk and protect your business’s future financial security. Company insolvencies are forecast to rise sharply with many debtors defaulting on their payments for protracted periods. On June 4th the government announced up to £10bn of backing for Trade Credit Insurers, to help businesses continue to trade through the pandemic if their customers’ default or are delayed in making payment.

Currently, uninsured companies will still be eligible to benefit if they take out cover now and subsequently their debtors’ default or go into liquidation.

How can trade credit insurance provide certainty in challenging times?

The past couple of years have been particularly volatile and uncertainty continues to surround both the impact of COVID-19 and the potential long-term effect of our exit from the EU. Trade Credit Insurance protects businesses against their customers’ failure to pay invoices, it provides cover against debtors’ protracted default or insolvency. It also provides cover for ‘political risks’ when overseas customers cannot pay their debts as a result of events beyond their control, such as acts of terrorism, war, and natural disasters. Most businesses make provision for bad debts, but unforeseen insolvencies can seriously dent reserves and, losing a major client, presents a significant risk to future security. Trade Credit protects this exposure, whilst also providing a good framework for financial corporate governance, which offers several additional benefits:

  • It can be used as security for finance from Banks and Invoice Finance providers.
  • It enables companies to assess and monitor their ledger to ensure customers remain creditworthy (most insured companies see a marked improvement in the creditworthiness of their ledger).
  • It allows businesses to identify and target good quality prospects, providing the confidence they will be paid for goods or services.

It supports the development of new export relationships in unknown territories, which could be of particular value post-Brexit.

How much does trade credit insurance cost?

The cost varies depending on the business’s sector, turnover, and previous bad debt record as well as the type of policy required. Premiums vary from insurer to insurer, so we search the market to identify the best value solution for our clients.

Is trade credit suitable for SME’s?

Yes, Trade Credit Insurance is suitable for businesses of all sizes. Many SME’s use Credit Insurance to secure their growth. We have several SME options for businesses with turnover under £500,000 with minimum premiums starting at about £2,500-£3,000. We also provide Trade Credit Insurance to large corporate organisations.

The Secretary of State for Business, Alok Sharma commented:

Our £10 billion guarantee gives peace of mind to businesses, allowing them to continue to trade and maintaining liquidity in supply chains. This reinsurance scheme is an important step as we carefully set about firing up our economy as we emerge from the pandemic

To learn more about Trade Credit Insurance click here .

or contact Martyn Locke directly on Martyn.Locke@tysers.com or +44 (0)7585 793216

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