Are you at risk from a major customer going bust?

Are you concerned about the possibility of a large corporate customer one day going under and owing you considerable sums of money? Credit insurance is available to help mitigate against this risk. Find out how below.

Credit insurance is designed to protect your business when you trade on credit terms with other businesses. A credit insurance policy will cover you and your business against losses arising from non-payment by a customer. In doing so, it insures what may be your largest asset - your debtors - and will therefore protect the lifeblood of your business - your cash flow.

Whether you need credit insurance depends on how confident you are about the financial strength of your customers. Questions to ask yourselves include:

  • Are you confident that your key customers are not at risk of going under?

  • Are you confident that a key customer that is creditworthy today will still be that way tomorrow?

  • Are you in a position to regularly track the financial strength of your customers?

  • Are you sure you are not winning new customers that competitors have dropped due to a poor credit rating?

  • Are you able to spot a credit control problem before it hits you and take appropriate action?

  • Could your business survive if your largest customer were to go bust tomorrow morning?

  • What if another customer was to collapse a month later? Could you survive that too

If the answer to any of these questions is "no", then credit insurance should be considered. Credit insurance protection typically provides cover against non-payment of debt arising from insolvency or default. There is usually an excess of either 10% of a debt or some other specified amount and a minimum excess of perhaps £1,000. Credit vetting is almost invariably included as part and parcel of the policy and some credit insurers also provide a debt collection service.

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