Factoring Partners, weekly blog, 15th January 2016
A large part of this week has been spent on credit insurance matters, both speaking about it to a number of prospective users and a day in the company of Euler Hermes, ‘the UK and world’s leading credit insurer’
To many businesses the amounts they are owed by their customers represents their biggest asset and it is surprising how many don’t bother to take any kind of insurance to protect themselves against customer non-payment.
I have been speaking to a local business that suffered a £50k bad debt in 2015 and with no credit insurance policy in place the damage inflicted on the business by the unexpected default was very nearly, but not quite, terminal. Luckily the business had historic reserves enabling the loss to be absorbed but not all businesses would have coped and may well have gone bust themselves.
Euler Hermes have a policy called ‘simplicity’ aimed specifically at businesses with annual sales of less than £4m. Dependant upon the actual turnover there’s a fixed, non-negotiable, premium.
For example for a business with turnover between £80k & £400k the premium is £3670; rising in tiers with businesses between £3.2m & £4m paying a premium of £11740
The business referred to above has now taken out a policy and whilst there’s an element of closing the stable door after the horse has bolted as far as last years loss is concerned I think a prudent decision has been taken. The business will also benefit from accessing the Insurers proprietary information providing sales and management intelligence and this is a feature not to be undervalued.
Regardless of customer base credit insurance is something to be given careful consideration, assuming customers are immune from insolvency is dangerous and a quick look back over time will reveal seemingly solid businesses that have failed.
Back to the world of invoice finance and yet another single invoice financier about to join the market!