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Why Credit Insurance?

If your business involves selling to other businesses or lending to them, you are likely to be exposed to credit risks. The reason for that is simple – if your clients don’t pre-pay you, but pay based on invoices or even take a credit line from you, you may lose your money if they go insolvent. A credit insurance policy insures against non-payment of your clients’ obligations to you. 

There are two main types of credit insurance – whole turnover or portfolio ones and single risk covers. Because of the concentration of risk, single risk policy premium rates are usually higher on a relative basis than a whole turnover policy, but may be competitive in absolute terms.

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What is single risk credit insurance?

Single risk policy holders often choose it for the larger risks they are exposed to. Also called comprehensive non-payment insurance, such insurance protects clients against a buyer or borrower failing to meet their contractual payment obligations due to their inability to pay.

Our single credit risk or comprehensive non-payment insurance solutions are used by clients to be able to do more business with their counterparties without affecting their aggregation counterparty or country limits. Our policies are in line with such regulations relevant to banks as Basel III and as a result can be used as a credit risk mitigant providing a capital relief.

What is whole turnover credit insurance?

A whole turnover trade credit insurance policy includes all buyers and insures against non-payment. Because of the spread of risk, premium rates are usually competitive. The entire buyer portfolio is constantly being monitored, and suppliers are advised about the state of every buyer. 

Insurers have different ways of insuring receivables. Policy holders can often choose smaller or larger risk sharing options. Policies that are currently offered can cover domestic sales as well as world-wide sales, depending on the wishes of the customer. Customers can often choose between insuring a single transaction or all their sales. All these factors influence the premium rate widely. Insurers offer a free quote without any obligation, either on-line or from dedicated sales staff.

Trade credit insurance covers payment risks resulting from trade with buyers. If the seller or policyholder decides to only insure his trade with buyers situated in his own country, the cover is referred to as domestic credit insurance. This type of cover usually insures against non-payment as a result of insolvency (bankruptcy). It can also insure against the risk that payment is not received after an agreed period (usually 6 months) (protracted default).

What kind of risks are covered?

Trade credit insurance insures against the risk that a buyer does not pay. It can also cover the risk that a buyer pays very late. A buyer will not pay after he has been declared bankrupt, insolvent, or a similar legal status. Similarly buyers sometimes opt for a bankruptcy protection arrangement, which allows them to delay payments for an extended period. Both instances are covered under a trade credit insurance policy. Trade credit insurance policies can include a wider range of cover, depending on the circumstances. Some policies consider a delay in payment also to be an insolvency (so-called protracted default cover). If a buyer does not pay, the trade credit insurance policy will pay out a percentage of the outstanding debt. This percentage usually ranges from 75% to 95% of the invoice amount, but may be higher or lower depending on the type of cover that was purchased.

Trade credit insurance policies are flexible and allow the policyholder to cover the entire portfolio or just the key accounts against corporate insolvency, bankruptcy and bad debts. The most common type of cover is so-called Whole Turnover Cover, which covers all buyers of the policyholder.

“The credit risk that is insured has to have a direct link with an underlying trade transaction, i.e. the delivery of goods or services. If no such direct link exists, the outstanding amount is not insurable under a trade credit insurance policy. To be insured, transactions may not be subject to disputes. Parties are usually requested to resolve any dispute, prior to involving the insurer.”

Trade credit insurance policies are drafted to suit your needs. This makes them unique for each customer. A trade credit insurer will always investigate your particular circumstances and wishes. The result is a custom made policy at a corresponding affordable premium. Most trade credit insurers also offer standard policies, which may be more suitable depending on the trade to be insured. Many trade credit insurers have developed particular policies aimed at small and medium sized enterprises (SME). These policies have low administration, and are competitively priced.

How To Obtain Credit Risk Insurance?​

At Modern Business Club, we can arrange a very competitively-priced credit insurance cover that’s designed specifically for your business. We’ll handle all the necessary paperwork to ensure we get the right policies for you, and we’ll be on hand to help if you ever have to make a claim. Call us today on 0203 797 1287 or fill in this quick form and one of our insurance experts will be in touch soonest.

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