insurance
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Credit insurance
• Almost every business i's involved in trade credit. Yet credit is probably abused and misused more than any other commercial arrangement. Most operators will doubtless bear this out.
However, not everyone realizes that the risk of non-payment due to insolvency or protracted default on the part of buyers or customers can be insured under credit insurance. "Protracted default" is a failure to pay a debt within 90 days of the due date.
This type of policy provides an indemnity between 75 and 85 per cent for admitted losses within mutually agreed limits of credit. This requirement encourages insured firms to exercise every care in their credit trading activities seeing that their own share of any loss varies between 15 and 25 per cent. This percentage varies according to the quality of the business.
One of the major benefits from a credit insurance policy is the peace of mind deriviiig from the knowledge that practically the whole of all the money locked up in your customers is protected. At the same time, this insurance is designed to be a complement to and not a replacement of good credit control management.
It has ancillary advantages, too. These include an extensive status information service for the establishment of lines of credit with customers, early warning advice on known bad risks and deterioration in pattern of payment of insured customers. A debt collection service operates for those who require it and many firms have found that a credit insurance policy is of the greatest help in regard to the discounting of bills or the obtaining of bank or other finance.
What about claims? When an insolvency arises, an insured claim is paid within 30 days of the insurers receiving confirmation that the insured debt has been admitted to rank against the insolvent estate. In the case of protracted default, a claim is payable within six months from the date of the occurrence of the default. A point to note here is that sometimes a defaulting customer is prevented from meeting his commitments through restrictions imposed by a government. In such cases, no claim can be admitted unless there is insolvency and an admitted debt.
The most usual form of credit insurance is the Whole Turnover policy. This insures on an annual basis the entire business. Alternatively, it is possible to arrange what is called Specific Account cover, which insures one or more named customers. Some Whole Turnover policies are issued on an excess loss basis, either for the purpose of eliminating normal bad debts from the scope of the cover, or in the cases where insurance against catastrophic losses is all that is required.
The cost? Each case is treated on its own merits, even within the same trade. It is not possible to set up a tariff of rates of premium under this class of insurance.