Credit Insurance protects one of your major assets - Your Debtors
It protects your company against Bad Debts
Should a debtor become insolvent, the insurance company will pay your claim within 30 days of the “Confirmation of Debt” from the liquidator thereby preserving your cash flow
It is a valuable management tool that supports your company’s own credit policy
Trade Credit Insurance is not just an Insurance Policy; it is a means of alerting you to potential problems with your debtor
A bad debt may cause your own insolvency
How does It work?
When considering a policy, you need to consider the following factors:
Analysis
Analysis of where your risk lies;
Cover
The level of cover the you may require; and
Excess
The “Deductible” (excess) that you are prepared to carry
You submit the names of the companies you wish to insure and the amount of cover required.
The Underwriter makes an assessment of the credit worthiness of the debtor and advises the credit limit they are prepared to write on that company.
Once the limit is in place you can safely trade with the debtor, confident in the knowledge that should the debtor fail, your debt is protected (insured) under the policy.
The Underwriters will continue to monitor all debtors for the duration of the policy period and should any adverse information become available, then the Underwriter notifies Credit Insure of the potential problem and we consult with you regarding the appropriate action to taken.
Trade Credit Insurance does not only “Insure” the debt, it is a means of assisting you to avoid and or minimise bad debts through this monitoring and networking system.
If the level of business increases with any debtor, you are at liberty to apply at any time for an increase in the current credit limit.
You can apply for a credit limit on new customers at any time during the life of the policy.
What am I covered for?
The basic policy covers you for 90% of the insured amount (credit limit), however this figure may be negotiable up to 100% depending on the type of policy taken out and the excess taken.
As each business has its own individual needs, each policy has to be tailored to suit those needs
What is the cost?
The cost is calculated on a number of factors including (but not limited to):
The turnover to be insured;
Your industry;
The type of cover you require and your choice of deductible;
Your past bad debts history; and
Type and size of the limits that you require.
Most policies are costed as a percentage of the turnover to be insured, which can range from 0.1% to 1.0% depending on your company and industry. You choose the deductible (excess) and the percentage you want to cover.
As with most insurances, the higher the deductable, the lower the price.
Premiums start from around $15,000 (plus stamp duty and GST) for the “Standard type” polices.
Types of Policies
Whole of Turnover
This policy covers your complete debtors ledger.
The higher the deductable the lower the price. The Insured percentage on this type of policy is usually set at 90%.
The cost is based as a percentage of the business’s total turnover, excluding GST, Government departments, inter-company accounts, cash sales and C.O.D accounts.
The Underwriter will set a Discretionary Limit (D/L) which allows you to grant credit up to this level without the need to apply to the Underwriter for a specific credit limit.
Any limit required above the D/L must be approved by the underwriter.
Top Account Cover
This type of policy allows you to insure only your top accounts only.
The cost of this type of policy is determined as a percentage of the total limits of the accounts to be covered
Specific Account
This type of policy is to cover a single account nominated by the client.
Underwriters are very selective when offering this product.
In some cases it can be more cost effective to insure a number of your top accounts rather than a specific account.
Catastrophe
This type of policy is for companies with a large turnover willing to absorb a moderate level of bad debts with a high excess.
It covers the client against a major unexpected loss and carries an Aggregated First Loss (AFL) (this usually starts at around $50k).
The cost of this type of policy is determined by the company’s turnover, the level of limits required, the maximum sum insured under the policy, the AFL and the level of excess chosen.
Small Business (SME)
This policy is designed for companies with a turnover up to $2.0 million.
Premiums start from $3,000. This product is only offered by QBE Trade Credit and a strict criteria applies.
Special Note: This option may not be available in certain industries and or given the current economic climate
Export
This policy insures your shipment to overseas customers.
The policy can cover deliveries from one country to another outside Australia, providing that the transaction is invoiced in Australia.
The cost is determined as a percentage of turnover based on a country by country basis and country risk.
