Credit Insurance

Mightyquin

Hi,

I work in Credit Insurance and have had a number of enquiries about the potential cost of cover from accountancy students for a case study they are asked to do on a ficticious company called 'Chic Paints' - it looks a good case on paper and I was disappointed when I realised the first enquiry wasn't genuine!!

I have also had general queries from accountants who have been asked to advise their clients on the cost/benefit of cover, so I thought posting some basic info here would help.

The question "how much does it cost" is the same as "how long is a piece of string".

Credit insurance is quite a complex product and cover can be structured in many different ways to meet the particular needs (and budgets) of the company.

Cost also depends on a number of factors such as their previous bad debt history, their trade sector/s, if they are exporting or just selling locally, amount of insurable turnover, maximum exposure, number of customers etc.

Policies also include credit limit underwriting and the exposures on key buyers will be taken into account.

There are a range of benefits for companies who use credit insurance, such as improved DSO, better access to finance (as the debtor books becomes an insured asset), credit information and confidence to drive sales growth, cover for collection costs and legal action to name a few.

Good credit management practice is essential in any business, and credit insurance does not replace any of that - it can't 'do the job' of a credit manager.

Ultimately, like any other insurance, it is there to protect against the unexpected. What happens to the business if the largest customer on the ledger suddenly goes into receivership? Could the business survive?

Most offices/factories have fire extinguishers and alarms, but they don't rely just on those, they still have insurance against their premises burning down!

I'm happy to answer any questions.

James Earley
CMR Insurance Services Ltd
j.earley@cmris.co.uk