Special Feature: The rise of the need for credit insurance - Financial Director

Special Feature: The rise of the need for credit insurance - Financial Director: "Special Feature: The rise of the need for credit insurance

Christian Doherty, Financial Director, 26 Apr 2010"

"Looked at objectively, the arguments for credit insurance are hard to argue with: lenders are happier to lend to businesses that can demonstrate adequate risk management, of which default and insolvency remains high on the agenda. And the insurer pays its client what its creditors owe when the insurance is triggered (within a range of limitations), meaning it lives to trade another day."

"Peace of mind


So what of the future? If the recovery does begin to gather momentum, will businesses decide credit insurance is an expensive luxury and dispense with it? Rycroft is advising his clients not to relax just yet. “As the economy picks up they could be in a position of not getting the limits again. At the same time, there are still many insolvencies, as companies relax as they are desperate for the orders.”

He also counsels businesses on the intangible benefits of taking on adequate cover. Tackling your credit policies (with insurance as part of that) can improve management discipline and internal control. Both are vital, even if the green shoots are only just making their first appearance."

"Case Study: Gary Wilson, FD, Essential Recruitment

I used to self-insure everything but, one year, Essential Recruitment was hit by a large bill. Taking that nasty hit was certainly a learning curve.

Prior to obtaining credit insurance, we would do the normal checks through Companies House and look at the accounts up to the previous year’s data, then take a commercial view.

However, having credit insurance has taken that issue off my desk. It allows for a commercial view to be formed by someone who is almost like a bookie, who will look at it with their professional expertise and say either ‘yay’ or ‘nay’. And when they say ‘nay’ it is usually for a good reason, which we follow to the letter, unless we can do it on a pro forma basis. We never like to turn business away, so we might just say, ‘we cannot give you credit, but if you pay up front we can give you the goods’.

I think the two big benefits of credit insurance are that it lets you spend more time on the business; it allows you to sleep at night, on the basis that if there is a large bill out to a client – in the worst case scenario – you are covered.

Bear in mind that the insurers look at the most up-to-date data on a business and that the picture can change quickly. Look at Jarvis, for example: one year it has a billion pound asset register, the next year… who knows? So if something like that goes bust, you’re covered.

This year I considered self-insuring on the basis that we now have better discipline from having had credit insurance. The theory was that we could put the money we spend on the premium aside to use in the event of default.

But we took the view to carry on with credit insurance this year because we thought that just as many businesses will be facing financial constraints coming out of a recession as did going into it. Cash is still king, after all, so it could well be that there are more insolvencies this year than last. We have ended up taking credit insurance for the forthcoming year as well, which we will then review next January to see what is out in the market."

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This is an interesting article from the "Financial Director" website. The site is a UK site (It seems that European companies are more likely to use business credit insurance than U.S. companies). I posted a couple of sections from the article above - you may want to read the whole article - click on the title.

If you are a United States company and are starting to understand the benefits of business credit insurance, contact BCIB of US or BCIB of TX for an indepth analysis of how business credit insurance might work for your company.