Credit Insurance

What is credit insurance?
Credit Insurance provides your business with protection against the failure of a customer to pay their trade credit debts. This can arise as a result of your customer becoming insolvent or because your customer fails to pay within the agreed credit period. These risks are referred to as ‘commercial risks’. The protection covers as standard goods or services sold and delivered, but can be tailored to cover many other risks such as work in progress and binding contracts.
Why use a broker?
An independent specialist Credit Insurance broker can access the whole of the Credit Insurance market. The majority of all business in the Credit Insurance market is conducted through a broker. This is primarily because policies are technical and should be ever changing, to reflect your business. There is no additional charge for these services, which include:

  • Experience and technical knowledge of the policy and credit insurance market
  • Helping you to maximise the insurance cover on your sales ledger
  • Taking ownership of claims therefore no drain on your resource
  • Remarketing your policy to make sure you are paying the right premium
  • The broker works purely on your behalf, acting as your agent, not the Insurers
What is insured?
It is the undisputed, whole turnover that is insured. This will be less VAT, sales to any government body and intercompany trading. It will also exclude any pro-forma invoicing and other non-credit transactions, as well as customers where the Insurer has refused to underwrite a credit limit.

What are the main benefits of credit insurance?

Protection against unforeseeable bad debts and confidence to trade with new customers which allows you to grow your business in a sustainable manner.

How does credit insurance differ from obtaining credit reports?

Information agencies do not typically offer a guarantee to support their Financial Credit Report recommendations.

Much of the information obtained by the Insurer comes from their own intelligence gathering. This often makes it much more up-to-date than published information which can be over 12 months old. The Insurers will also react to real time policyholder feedback, on the customer’s ability to pay. You will then have much better quality, risk detail.

What is protected / covered?

Insolvency and Protracted Default which is non-payment of any sales invoices raised on a trade credit basis. Political Risk cover is available on ‘Export’ policies.

Who uses credit insurance?

Companies of all sizes use Credit Insurance. There are Credit Insurance solutions which suit the needs of the smallest SME company up to the largest multinational company.

How much does credit insurance cost?

The cost of a Credit Insurance policy is directly linked to the risk to which your business is exposed and is related to the amount of turnover that you wish to insure. It varies in relation to where your customers are located, your business’ track record [in credit management], the nature of your customers, and the trade sector in which you trade.

Can I manage my policy online?

All Insurers provide an online platform for monitoring and applying for credit limit approval. Some Insurers also provide online access to monitor claims and overdue accounts.

Do I have to do anything every month to protect my insurance?

You must advise the Insurer on any overdue accounts which remain outstanding beyond a specified period of time, after the due date and / or any related adverse information.

What costs are involved other than the basic premium charge?

Some Insurers will charge for credit limits, administration and debt collection services. However, these charges are not applied by all insurers. Premium attracts Insurance Premium Tax (IPT) and other charges attract VAT.

How long does my policy last?

Credit Insurance policies can be negotiated for 12 or 24 months. In exceptional circumstances some Insurers may agree to a period of more than 12 months if there is justification for doing so. E.g. In order that the policy falls into line with the financial year end.

How does credit insurance differ from factoring / invoice discounting?
Credit insurance will protect your cashflow, whereas factoring or invoice discounting will recourse the debt back to you, in the event of non-payment by the debtor. Factoring and invoice discounting may give the impression that the cost is lower than credit insurance. However, you have to make sure the draw down values are met, otherwise penal charges apply.  It is possible to obtain cover from the Insurer to secure your factoring or invoice discounting.
What is insolvency?

Insolvency is where a company has no money to pay its creditors in full and has had to seek protection from its creditors, through the Court.

What is protracted default?

This is where the Buyer is in default due to non-payment of their contractual obligations and where there is no valid dispute between the parties. Normally at this stage you would have issued court proceedings or passed the debt to a third party debt collection agency.

What is political risk?

The risk that a government buyer or a country prevents the fulfilment of a transaction, or fails to meets its payment obligations, or the risk that is beyond the scope of an individual buyer or falls outside the individual buyer’s responsibility. Insured Perils include Contract Frustration, Contract Cancellation, Export Restriction and Import Restriction.

What is pre-despatch cover / work in progress?

Costs incurred by the Policyholder between the date of the contract of sale and Agreed Delivery Date for which the Buyer is not normally liable under the contract of sale. They normally exclude overheads, profit and damages for breach of contract but can include:

  • Raw materials
  • Direct labour costs
  • Preparation of goods prior to the physical manufacturing process
  • Purchase of goods by the Policyholder for onward sale to the Buyer
  • Work in Progress costs incurred in manufacturing
  • Stock awaiting delivery
  • Pre-paid delivery costs
What is IPT?

Insurance Premium Tax. This is a levy that the UK Government set at 6% of premium.

What is a buyer?

Your customer with whom you trade with and is the subject of a Credit Limit endorsement to your policy.

What does maximum liability mean?

The maximum amount that the insurer is liable to pay in respect of all losses during a policy period.


Making a claim

A policy pays an agreed percentage, normally 90% of any invoice or outstanding balance that remains unpaid as a result of late payment or Insolvency. Most claims made on UK customers are due to a customer becoming insolvent either through administration, receivership or bankruptcy, which you normally have no control over.

How do I make a claim?

Like all insurances there is a dedicated form to complete. You will also be asked to accompany it with relevant original documents to support your debt and any activity to mitigate your loss. You are obliged to disclose all pertinent information. There are also time limits in which you can submit a claim.

How soon will a claim be paid?

Claims will be paid within a maximum of 30 days, in the event of an Insolvency (provided the Insurer has received all of the necessary paperwork). The timescale on Protracted Default claims does vary but are generally within six months of the original due date. You are expected to take all normal commercial procedures to mitigate your loss.

What percentage of loss do I get back?

Up to 90% of the VAT exclusive, unpaid balance, after deducting any policy excess.

What is the maximum pay-out I could expect from a large claim?

90% of the total debt after deducting any VAT and policy excess if applicable.

Is all of my debt covered?

The majority of policies are subject to 90% of the invoice value. VAT is excluded as it is recoverable through HMRC.

Am I guaranteed a pay-out if I have a loss?

Yes – provided you have justification for the credit which you advanced and have complied with the policy terms and conditions.

Is there anything I can do that would 'spoil' a claim?

The most common reasons for claims being refused is a lack of justification for the credit advanced and failure to inform the Insurer of the non-payment, within the specified timescale. As with any insurance, you are expected to be honest and disclose all relevant information.

Can you collect any overdue debts for me?

A number of Credit Insurers have their own Collection companies. However, CBF also have several independent Collection companies which we can recommend.


Is there a limit to the size of cover I can have?

Each policy has a Maximum Liability. This will be set in line with the size of your business and should not be disproportionate to the level of cover required.

How many of my customers can I insure?

All commercial customers who are given credit terms can be insured, subject to justification for the level of cover required.

How much cover is available?

On average, the level of indemnity is 90% but this can vary, depending on the type of policy you choose or on your specific requirements. Policies can also carry an excess which is normally deducted before the Indemnity is applied.

How do I add new customers to my credit limit list?

The Insurers have an online platform in order to process credit limit requests.

Are all of my customers covered?

All of your commercial customers can be covered subject to you holding justification for the credit value on their account and you comply with all the Policy conditions.

What is justification for credit?

This is the way that you have calculated your credit limit. If it is from the Insurer then that is a definitive decision.

How do I justify my credit limits under my discretionary cover?

The criteria set will depend on the particular Insurer involved. Most insurers will allow you to use recent payment experience and / or Financial Credit Information reports, recommending a specific level of credit.

Can I use my discretionary cover when the insurer takes away my official credit limit?

Not immediately.  When an Insurer withdraws cover as a result of adverse information, you will not be able to use your Discretionary Limit justification to advance additional credit. However, some insurers will allow the Discretionary Limit to be reinstated after either renewal of the policy or 12 months, depending on the Insurers’ wording.

Can I get a credit limit on a sole trader?

Yes, it should be possible to obtain cover on a Sole Trader if they have been trading as a commercial company. The same applies to Partnerships.

Can you provide me with a credit opinion on my customers?

Yes – we can supply Financial Credit Information reports from a number of different sources, at a price which is negotiable. We offer a “pay as you go” service so you are not locked into a long term contract.