What is Invoice Insurance?

The primary function of Invoice Insurance is to provide protection in the event that a customer does not pay an outstanding invoice. When a business issues an invoice to a client, they may face the risk of non-payment for various reasons. If a customer defaults on payment, Invoice Insurance can step in to cover a portion of the outstanding balance.

The process works as follows:

1. A business issues an invoice to a client.
2. If the client does not pay within the agreed time and no other recovery methods are successful, the business can make a claim on their Invoice Insurance.
3. The insurance provider then pays a percentage of the unpaid amount, depending on the policy terms.

This protection ensures that a business’s operations aren’t disrupted due to non-payment by clients.

Who Should Consider Invoice Insurance?

Invoice Insurance is ideal for businesses that operate on credit terms or those that rely heavily on invoicing to generate revenue. This includes:

• Small and medium-sized enterprises (SMEs)
• Wholesalers and distributors
• Service providers and contractors
• Businesses with a large number of credit sales or that deal with clients in high-risk industries

Invoice Insurance could be an invaluable investment if your business regularly extends credit to clients or relies on timely payments to maintain a healthy cash flow.

What Does Invoice Insurance Cover?

Invoice Insurance generally covers losses resulting from the non-payment of invoices. The typical coverage includes:

• Customer Insolvency or Bankruptcy: The policy will cover the outstanding amount if a client goes bankrupt or becomes insolvent and cannot pay their invoice.
• Payment Default: Invoice Insurance will provide financial protection if a client fails to pay for any reason, such as financial difficulties or a change in their business status.
• Fraud or Misrepresentation: Some policies cover the financial loss if a client intentionally withholds payment or engages in fraudulent activity.

While Invoice Insurance provides valuable protection, the coverage specifics can vary depending on the provider and policy. It’s important to review the policy terms to fully understand what is and isn’t covered.

How Much Does Invoice Insurance Cost?

The cost of Invoice Insurance depends on several factors, including the size of your business, the volume of invoices, and the creditworthiness of your clients. Insurance providers typically charge a premium based on a percentage of the total value of the invoices you wish to insure.

The cost may also vary depending on the level of coverage you need and the industries you operate in. Higher-risk clients or industries may lead to higher premiums, while businesses with a strong track record of timely payments may pay lower premiums.

Is Invoice Insurance Mandatory?

Invoice Insurance is not a legal requirement for businesses, but it is highly recommended for businesses that rely on credit sales. Non-payment of invoices can significantly affect your business’s cash flow and, over time, impact your profitability. Having Invoice Insurance offers peace of mind and ensures that you are protected from potential losses.

While it’s not required by law, many businesses, particularly SMEs or those working in high-risk sectors, find that Invoice Insurance is valuable in maintaining financial stability.

How Do I Make a Claim on Invoice Insurance?

If a customer defaults on payment and attempts to recover the outstanding amount have failed, you can file a claim with your Invoice Insurance provider. Typically, you must provide evidence that the client has not paid within the agreed period and that all reasonable attempts to recover the debt have been exhausted.

You may also need to provide proof of insolvency or details of the dispute that led to non-payment. It’s important to follow the claims process outlined by your provider to ensure a smooth and timely resolution.

Are All Types of Unpaid Invoices Covered?

Not all unpaid invoices are covered by Invoice Insurance. Most policies have exclusions, such as:

• Invoices overdue beyond a specific time period (e.g., 90 days)
• Disputed invoices where there is an ongoing issue between you and the client
• Clients with a history of late payments or poor credit risk

It’s important to carefully read your policy’s terms and conditions to understand any exclusions and ensure your invoices are covered.

Can I Insure Individual Invoices?

Yes, most Invoice Insurance policies allow businesses to insure individual invoices or select clients rather than automatically covering all invoices. This flexibility allows you to tailor the policy to your specific business needs. For example, you can choose to insure invoices for clients who are higher risk or those with whom you have larger credit terms.

This approach allows businesses to minimise insurance costs while protecting themselves from the risk of non-payment.

Can I Cancel My Invoice Insurance Policy? 

Yes, it’s generally possible to cancel your Invoice Insurance policy. However, cancellation terms vary between providers. Some insurers may refund unused premiums, while others may charge cancellation fees. Be sure to review the cancellation policy and discuss your options with your provider before deciding.