How does Credit Insurance Work

A quick guide

If you’ve ever wondered how does Credit Insurance work, here’s a easy-to-follow guide of what it involves. You ask the credit insurer for a credit limit on each of the customers with whom you trade above an agreed level. Below this level (referred to as your Limit of Discretion) you do not need to ask for a credit limit. Instead, you can use your own sources of financial status information and trading experience to justify the trade credit which you extend. Provided you trade within the set parameters and abide by the terms and conditions of the policy (which we shall come to in a moment), you will be covered (up to the limit of cover agreed) if one of your customers should fail.

How does credit insurance work?As regards the level of cover available through a credit insurance policy, typically 80%-90% indemnity applies, depending on the type of solution you choose. Credit insurers are generally flexible insofar as your choice of which customers to cover. Some companies may wish only to cover their top customers or against ‘exceptional’ losses and there are specific policy types available that allow you to do just this.

Top-Up cover

We can attempt to source top-up cover for policyholders where their existing credit insurer’s credit limit cannot be increased further. For example should a credit limit on a buyer be limited to say £200,000 but a limit of £300,000 is required, a limited number of credit insurers will consider top-up cover to cater for the additional £100,000. The cover is not available where the main credit insurer has refused to agree any limit.

To what extent do I need to be involved?

Your role is to provide the credit insurer with certain information, such as when a customer’s account becomes overdue beyond the contractual due date or any extended due date which may be allowed under the policy. You must also inform your credit insures if you receive or become otherwise aware of any adverse information about a customer which suggests that the customer may not be able to meet its financial obligations under the sale or service contract covered by the policy.

How soon will my claim be paid?

Typically you will be paid within 30 days of confirmation that an insured debt has been admitted to rank in the insolvent estate of your customer. We say 30 days, but it is true to say that in many cases the claim can be paid considerably quicker that this. In the case of protracted default, claims tend to be paid within three months of the occurrence of such a default, or the receipt of a claim form – whichever is the later.

Contact us today to obtain a quotation for Credit Insurance, or call us on 01253 594211.

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