Trade credit insurance provides a business with cover in the event its customers become insolvent or cannot pay their debts.

Having robust insurance in place is vital for many businesses, however the process of being involved in a claim is time-consuming, can negatively impact cash flow, and can tie up resources and distract your team from focusing on high-impact work.

Where possible, it is far more efficient and cost-effective to lead from the front and take early corrective action instead of being forced to make a claim to recoup losses.

The key to reducing debtor risk and avoiding trade credit insurance claims comes down to several factors:

• Having the right level of insurance cover in place
• Conducting good due diligence on your debtors
• Ensuring credit checks are thorough
• Monitoring your customers for red flags like payment defaults and credit enquiries

How do trade insurance claims work?

When businesses take out a trade credit policy, they are often required to specify which debtors they want to insure. Some policies are general and will insure all the business’s debtors, however most have a specified discretionary limit and payment terms.

This discretionary limit is the maximum credit limit you may establish without contacting your insurance company for specific approval. Therefore any transaction you make over the agreed discretionary limit without approval from your insurer may mean that you’re not covered for that transaction.

This can leave businesses exposed to more risk if they do not regularly get individual debtor limits approved. Transactions under the discretionary limit – which could make up a large portion of your revenue – may fall outside the parameters of your policy, leaving you with unpaid debts if a debtor is unable to settle their invoices, defaults on a payment or becomes insolvent.

Limitations of insurance policies

Many businesses settle for a ‘good enough’ level of cover, balancing the cost of premiums with their risk appetite.

Of course, good insurance policies are designed to keep your finances safe and your business covered, but if the potential loss is less than the cost of your annual premium, it may not be financially viable for a business to insure itself against every possible scenario, increasing the possible credit risk.

Insurance companies also vary wildly in their diligence with reporting on defaults and other red flags. This is where conducting your own due diligence can become a deciding factor in reaching a positive outcome. If your initial research uncovers previous adverse information, you may choose not to do business with the customer, or apply for individual limits each time you trade at a value higher than your discretionary credit limit.

However, adding individual transactions to your insurance policy can be expensive and time-consuming, and only protects you against issues after they happen.

CreditorWatch’s monitoring software offers a cost-effective alternative to this challenge such as implementing insurance solutions such as bridging the gap between high-value listed transactions and the clients that your insurance doesn’t cover.

How CreditorWatch can help

CreditorWatch has a range of reporting and risk management tools to enable businesses of all sizes to uncover risk factors and adverse data like default risk and court actions. Combining this information with ongoing monitoring and an adequate level of insurance can help your business make good decisions and avoid trade credit claims.

Due diligence tools

Our automated onboarding software helps you review a customer’s finances before you extend trade credit. See at a glance how solvent your clients are with access to credit reports, existing PPSR registrations and information on cross-directorships and ultimate beneficial owners. Giving you and your business a peace of mind.

Live monitoring and alerts of customers

Our live, real-time monitoring and alerts give you key updates as they happen. This helps you stay vigilant and make informed decisions to protect your business, monitoring debtors for red flags like deteriorating payment behaviour, defaults and changes to their RiskScore.

Report adverse behaviour

Register payment defaults that remain on a company’s credit report for up to five years. This feature is unique to CreditorWatch and is a powerful way to encourage your debtors to pay you faster than their other suppliers. Why not be at the front of the queue?

Get started with CreditorWatch

Stay ahead of trade credit claims with proactive debtor management from CreditorWatch. Our tools give you the data you need to make better decisions and keep cash flow moving.

Contact us today for a free demo of our onboarding, reporting, management and risk mitigation software