Credit Insurance

What is credit insurance?

Credit insurance provides your business with protection against the failure of your customer to pay their trade credit debts – i.e. money that is rightfully yours. Such a debt can arise because of your customer becoming insolvent (i.e. going bust) or because your customer simply fails to pay within an agreed credit period.

Who uses credit insurance?

The sensible ones! Credit insurance is suited to all manner of companies, regardless of whether they are trading nationally or internationally, and in all sectors from manufacturing to services. In terms of size, they tend to be firms with turnovers from £250,000 through to the turnovers of the largest multinationals.

When and why would you consider using credit insurance?

On average, companies are estimated to have 40% of their current assets in the form of trade debtors.

Research has shown consistently that companies are unable to predict most of the failures to which they are exposed. Indeed, it is estimated that up to 50% of all failures concern customers that were previously considered to be both long standing and prompt paying. It is a sobering thought that even the customer you thought you knew best of all could inadvertently end up being your downfall.

A further reason why businesses should consider using Credit Insurance is because a bad debt often causes a company to reduce the amount of credit it extends to its customers. Again, in simple terms, it is easy to see how this potentially exposes that business to its competitors, leaving it in a potentially much weaker competitive position.

How does it work?

How it works is this: You ask the credit insurer for a credit limit on each of the customers with whom you trade above an agreed level. Below this level – referred to as your Discretionary Limit – you do not need to ask for a credit limit as you can rely upon past trading experience. Provided you trade within the set parameters you will be covered (up to the limit of cover agreed) if one of your customers should fail.

In the event of a bad debt, you will typically receive back 90% of the balance, net of VAT. Credit Insurers are generally flexible insofar as your choice of which customers to cover. Some companies may wish only to cover their top customers or against ‘exceptional’ losses. (There are specific policy types available that allow you to do just this).

To what extent do I need to be involved?

Your role is to provide the credit insurer with certain information, such as when a customer’s account becomes overdue beyond the contractual due date or any extended due date which may be allowed under the policy. You must also inform your credit insurer if you receive or become otherwise aware of any adverse information about a customer which suggests that the customer may not be able to meet its financial obligations.

How soon will my claim be paid?

Typically, you will be paid within 30 days of confirmation that an insured debtor has entered insolvency. We say 30 days, but it is true to say that in many cases the claim can be paid considerably quicker than this. In the case of late payment, where insolvency has not occurred, claims tend to be paid within three months of the occurrence of such a default.

How much does it all cost?

The cost of a credit insurance policy is calculated as a percentage of a company’s insurable turnover, and will depend on its trading history, turnover, business sector and customers on which you need cover. Historically, the range is from less than 0.1% of turnover to more than 1%. As each policy is tailored to a company’s specific needs, every policy is priced uniquely

The Benefits of Credit Insurance

• Reduction in Bad Debt – Should any of your insured customers enter insolvency or refuse to pay your invoices, the prompt settlement of your claim will ensure your business is protected from the harmful effect a bad debt can have.
• Improved Cash Flow – A credit insurer will not only insure you in the event of a bad debt, therefore safeguarding your cash flow, but through their debt recovery services you will also be able to collect your trade receivables more quickly.
• Safe Business Growth – Many businesses have historically relied upon credit opinions to check the credit worthiness of a new customer. But the downside is this information can be dated and offers no guarantee you will get paid. A credit insured business has access to the most accurate and up to date information available on companies across the globe, allowing you to trade with confidence when taking on new customers. But just as important, a credit insurer is there to help steer you away from businesses that are unable to honour their financial obligations.
• Trade Finance – If you are looking to raise working capital through Invoice Discounting or Factoring, credit insurance is sometimes conditional to these facilities. Conditional or not, credit insurance can help you gain access to finance and at more competitive rates.
• Peace of Mind – In the uncertain times we find ourselves in today, having credit insurance protection can afford you a lot more certainty when trading on credit. Allowing you to concentrate your resources on developing your business, improving your cash flow and overall profitability.

Why use Paramis Finance for Credit Insurance?

• Expert Guidance – We understand the credit insurance market and can help businesses find the best coverage for their specific needs.
• Access to Multiple Insurers – We work with a range of providers, ensuring you get competitive rates and comprehensive protection.
• Tailored Solutions – We assess risk exposure and structure policies to match the company’s industry, size, and trade patterns.
• Claims Support – In the event of a claim, we will assist with the process to ensure swift and fair payouts.
• Negotiation Power – We can leverage our industry relationships to secure better terms, pricing, and policy flexibility for your business.
• Time-Saving – We will handle policy comparisons, paperwork, and renewals, allowing your business to focus on growth.
• Ongoing Risk Management – We will provide continuous advice on credit risk, helping your businesses adapt as you expand or enter new markets.
• Increased Confidence in Trade – With expert-backed credit insurance, your business can trade with peace of mind, knowing you’re protected from bad debt.

Using Paramis Finance ensures your business gets the right coverage, at the best price, with expert support throughout the policy.