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Everything You Need To Know About Bad Debt Insurance

Bad debt insurance, also known as accounts receivable insurance, debtor’s insurance, or trade credit insurance, is a great way to protect your balance sheet and enjoy better risk management at your company. This type of insurance helps protect your business from the risk of bad debt, and ensures you can protect your business if a client or company you work with fails to pay their debts in a timely manner.

The way bad debt insurance works is simple. When you sell goods or services to another company on Net 30 terms or similar credit terms, you take out a policy that will pay out if they fail to pay.

For example, if your client company fails to pay within a specified period of time – such as 6 months – the bad debt insurance policy will kick in. Depending on the terms of your policy, you will be compensated a percentage of the face value of the invoice, often ranging from 70% to 95%.

This helps protect your business and your accounts receivable from non-payment, which can be particularly useful when working with new firms, companies that may have a higher credit risk profile, or with international companies.

The Benefits Of Bad Debt Insurance

Wondering how your business can benefit from bad debt insurance?

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    Provide customers with a higher credit limit – Because your balance sheet will be protected, you can extend a higher credit limit to customers purchasing your goods and services, which can help boost profits.

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    Protect cash flow & your business – If a customer defaults or can’t pay, you can still get compensation for your goods and services, which is very important for smaller firms who may only have a few large customers.

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    Avoid legal fees and debt collection – The process of suing a defaulting customer and sending a collector to get the money you’re owed can be complex, and you may not even be able to recover the full amount of the funds you’re owed.

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    Get peace of mind – With bad debt insurance, you will be able to rest easy, knowing that you can sell to all customers, even those with a relatively high credit risk, and recover the funds you’re owed in case of non-payment.

Bad Debt Insurance | Niche Trade Credit

Commercial Risk Insurance

Domestic (Australia & New Zealand)

Commercial Credit Risk Insurance protects your business and reduces the risk that you will lose financially though some type of non-payment.

This type of insurance can be tailored to fit any size business and it is just a matter of talking to our staff about your particular business needs.

It may be that you want to cover all your customers or perhaps just particular clients that would fall in the high risk category.

Commercial credit risks are generally considered to be factors or events that fall under the control of the buyer and can include:

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    Bankruptcy or insolvency

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    Not having sufficient funds to pay a debt

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    A default that is drawn out because of a refusal to pay for goods or services that have been received

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    The cancellation of a contract

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    Refusal of the buyer to take delivery of a shipment

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    A pre credit risk where the buyer enters into insolvency while the goods are being manufactured and prior to delivery

Commercial Risk Insurance | Niche Trade Credit

Some of the features that you can have as a part of Commercial Credit Insurance may include:

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    A credit limit that is specified for each of your customers that is decided in consultation with experts and takes into account the buyer’s payment history and their stated financial position

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    It may be that you choose to insure with credit limits for particular customers that may be more of a risk

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    Annual deductibles and per loss deductibles

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    Some exclusions and limitations on coverage

When you have Niche Trade Credit on your side you can feel confident knowing that you are covered in the case of insolvency, bankruptcy and other forms of non-payment.

You work hard to make your business pay and it only makes sense to ensure that your buyers do too.

Commercial Risk Insurance Features | Niche Trade Credit

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Are you unsure about your receivables and how much is owed to you? Do you need some independent advice to help you sort out your debtors and create a strategy for collection?

At NicheTrade Credit we can conduct a Credit Assessment and Health Check to give you an accurate idea of the state of your receivables portfolio. We offer an independent Credit Assessment and Health Check which will give an assessment on the quality of the receivables portfolio. The assessment will:

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    Discover opportunities to develop credit processes

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    Create a strategy for the improvement of cash flow

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    Determine areas where cost savings can be implemented

Debtors Health Check | Niche Trade Credit

The report includes a benchmarking and competitor analysis. The process takes 2-3 hours and includes discussions and interviews with the finance and credit managers, the completion of a standard questionnaire and a data template. It takes approximately 3 hours to complete this report for you, which includes:

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    An in depth discussion with finance and credit managers/business owners

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    An analysis of competitors within your particular industry

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    A report on how your business measures up when compared to similar companies

Debtors Health Check Report | Niche Trade Credit

This is an ideal opportunity to get an in-depth understanding of your financial position and the reports can be the basis of your forward growth financial strategy.

Would you like a review of your processes and procedures?

Would you like an independent review of your receivables performance?

Would you like to benchmark your receivables portfolio against other companies in your industry?

Would you like a credit specialist to identify cash flow improvement opportunities.

ready to protect your business?

More Services We Offer

Compliance

Credit Reporting/Ledger Cleaning

Early Warning System

Keeping an Eye on Credit Limits

Specialised Profiling

Practical Financial Advice

Credit Management Tips

Insurance brokerage service

Insolvency Insurance

When your business is covered by a Trade Credit Insurance policy there are a number of things that you need to do throughout the year to ensure that you are complying with all of its contained requirements.

Unlike most other insurance policies that sit in a drawer after signing and just need to be renewed on a yearly basis, for a Trade Credit Insurance policy you need to:

Understand credit granting and how you need to liaise with us when you sign new contracts to ensure that the client is covered under the policy and that there are no restrictions, and if there are what they are and how they may affect your relationship with the client.

Turnover declarations need to be completed so that the regular cash flow of your business is understood and any issues can be flagged.

Overdue reporting means that you are regularly assessing your client base and as soon as there are overdue payments that may signify a problem they are reported.

If this has got you confused don’t be that is what we are here for. Our expert staff will make sure that you fully understand your requirements and walk you through the steps that you need to undertake to ensure that you are compliant.

We offer a flexible service to ensure you get full value from your Trade Credit Insurance policy. Unlike other forms of insurance, trade credit insurance is interactive; you can’t file it in your draw for 12 months and only consider it at renewal. We help you to comply with credit granting under the discretionary limit, turnover declarations and with overdue reporting.

Do you honestly know who owes you money? Perhaps you have dealings with one or more staff members from an organisation that purchases goods or services from you but do you know the legal identity of the company that they are employed by?

If this question leaves you scratching your head and looking at your ledgers with fear then maybe you need our help.

But you are not alone, many ledgers hold incomplete debtor information and at Niche Trade Credit we can help you by reviewing your ledger.

The reason we recommend this is that if you have the full legal details of every one of your clients it makes it much easier to ensure that you receive payment by enforcing a contract.

This is also the case if a client files for insolvency and you need to rank for a dividend or make an insurance claim.

How handy would it be for you to know BEFORE a client defaults on a payment that they are experiencing difficulty with their finances?

It could open up a conversation about a payment plan, you could suspend a delivery of goods till payment is guaranteed or sit with them to create a strategy that is beneficial to both.

We can provide you with early warnings about both current and potential customers. Be aware before you sign if a client has outstanding debts with other providers so you can save yourself a headache or maybe insist on up front payment rather than extending credit.

Let us do all of the hard work for you. You may have set credit limits for some of your climates but do you have a process in place that means they are regularly reviewed.

We have experienced analysts that can do this for you. They have a broad range of information available to them for determining appropriate credit limits and can assess your data and provide guidance in this important area of business.

We guarantee that all of our mercantile reports are completed by our specialists to accurately reflect the information that is relevant to your business finances and standing without any ‘padding.’

Some providers may supply off the shelf generic reports but we guarantee that each one of our reports is the result of the analysis of the data that you provide us combined with the pertinent market information.

If you are not sure about your business finances and how to protect them, come and see us for practical advice.

Financial areas can be confusing to even the most experienced person. Your job is to run your business that is your expertise, this is ours and we can provide advice in areas like:

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    Effective Retention of Title

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    Directors Guarantees

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    Security or payment terms.

These are just some of the areas that we can assist with, come and see us to sort out your business finances before they become an issue.

We’ll also offer sound credit management tips and advice. Consult with our credit management team today if you’re having a problem with collecting your payments. As seasoned credit control and debt collection experts, we know all there is to know about getting your money back. Email us with any questions and enquiries you might have and we’ll get back to you as soon as we can. All enquiries will be handled professionally and discretely.

An important component of any effective cash flow management system, credit and debtors insurance is essential for any business in case there are debts that cannot be recovered. This type of insurance is particularly important in the case of large debts (e.g. a business’s largest customer), where the financial stability of the business would be at stake if the debt was unable to be recovered.

Bad debt can become a serious issue for businesses, particularly when left unchecked. It’s important to consider the impact of bad debt on your business early; once debt has accumulated and is causing serious strain, it is often too late.

We can take care of your risk insurance needs for you, finding a suitable insurer and then processing the paperwork on your behalf.

In the business world, there will always be people who cannot pay. As a business that sells goods and services in credit terms, it’s quite likely that much of your working capital is tied up in accounts receivable.

This is perfectly normal; however problems can arise when these invoices aren’t paid on time.

Whether it’s a small bill or a couple of months’ worth of unpaid invoices, it can ultimately lead to financial strain for your business.

The fact of the matter is that virtually every company has to deal with debtors – and consequently bad debt – from time to time. While some cases may result in nothing more than a little frustration, others can essentially ruin a business.