Back in June, the UK Government announced they would back trade credit insurance Sschemes to the tune of £10 billion in an effort to help secure trade business-to-business transactions.
While we gently steer out of the economic crisis as a result of the Covid-19 pandemic, businesses are wary about offering credit terms to customers. These terms are typically offered for between 30 and 90 days. Will the customer pay on time? Will they pay at all? Will they even be here in 90 days?
Credit terms are viewed as an integral part of the supply chain, necessary to maintain the free flow of goods and services. So, to help provide additional security to the credit insurers, the Government are supporting them with the necessary means to maintain cover and pay claims.
What is credit insurance?
A trade credit insurance policy transfers the risk of bad debts away from your balance sheet to an insurer, in return for a premium. Many businesses have up to 40% of their assets tied up in trade debtors (unpaid invoices) and yet this, arguably most important asset, often remains uninsured.
What this means for you?
Most business offer trade credit terms and will be part of a supply chain. Businesses who have the benefit of a credit insurance policy expect insurers to maintain credit limits and continue paying claims. In the face of Covid-19 and resulting economic downturn, insurers are under pressure to maintain cover, as late payments and insolvencies begin to increase. The good news is that insurers partnering with the UK Government will enjoy a great deal of added security, able to maintain the cover on riskier, Covid-19 affected buyers. Very good news for their credit insurance policyholders.
If you don’t have a credit insurance policy in place, now is the time to get one. It will reduce your exposure to these risks and provide you with the confidence to trade with suppliers and customers.