If you are looking at funding options and wish to maximise the value of your debtor book as security for a factor or bank, Trade Credit Insurance could be the solution.
Most factors and receivables funders will increase the valuation of the sales ledger as security if it is supported by Trade Credit Insurance, and you should be able to negotiate a better lending rate with your funder.
Credit Insurance vs. Bad Debt Protection
Bad Debt Insurance or Bad Debt Protection is a kind of insurance offered by some funders to cover their clients against customer insolvency when using their funding facility. It may sound the same as Credit Insurance, but there are a number of significant differences that can mean bad debt protection isn’t always the all-in-one solution it is made out to be.
The major difference is the level of cover and inclusive support that is included. Most bad debt protection policies typically offer insolvency only cover and funders are restricted to their one in–house offering. This restrictive offering means that the bad debt protection doesn’t always fit every company’s requirements. The credit insurance market is far more adaptable with options such as discretionary limit facilities and cover options such as non-payment (protracted default), political risk, work in progress and binding contracts. Credit insurance can also offer specific endorsements for industries such as construction, recruitment, advertising and many others.
Another significant difference is cost in the sense of how the premium/fee is charged on the turnover. Bad debt protection will charge premium for the gross turnover including VAT, whereas Credit Insurance only ever charges on the turnover net of VAT. That means that bad debt protection fees are paid on 20% more turnover than credit insurance – after all most companies charging VAT can claim it back in the normal course of business so why pay premium on it?
Finally, as a Broker we re-market all our polices every year to ensure our clients have the maximum cover at the most competitive rates, and we can assist companies in switching credit insurers with minimum fuss. This is a service that funders cannot offer.