Bad-Debt Protection for UK SMEs

Trade Credit Insurance and Bad-Debt Protection for UK SMEs

Trade credit insurance helps protect eligible UK businesses against customer insolvency, prolonged non-payment and unexpected bad-debt losses. Go-Factor helps SMEs access suitable protection through specialist trade credit insurance partners.

Selling to customers on credit can support business growth. However, every unpaid invoice also creates a risk. If a major customer becomes insolvent or cannot pay, the loss can affect cash flow, suppliers, payroll and the future of the business.

Bad-debt protection cannot prevent every customer failure. Nevertheless, an appropriate policy can reduce the financial impact of an insured customer failing to pay an eligible debt.

What Is Trade Credit Insurance?

Trade credit insurance protects eligible business-to-business debts when an insured customer cannot pay for goods or services supplied on credit. Cover may respond following an insured customer’s insolvency or prolonged default, subject to the policy terms.

The insurer agrees credit limits for covered customers. It may then pay an agreed percentage of an eligible insured loss if the policyholder follows the required credit-control, reporting and claims procedures.

Why Can One Unpaid Invoice Cause So Much Damage?

Most businesses operate on a profit margin that is much smaller than the total value of each sale. Consequently, losing one large customer debt can remove the profit earned from many successful transactions.

The business may also have paid suppliers, employees, transport and tax before discovering that the customer cannot pay. Therefore, a bad debt affects both profit and cash already committed to delivering the order.

Customer Insolvency

Protect eligible insured debts when a covered customer enters a qualifying formal insolvency process.

Prolonged Non-Payment

Some policies may respond when an insured customer remains unable to pay beyond the period defined by the policy.

Customer Credit Monitoring

Insurers assess covered customers and may update credit limits when their financial position changes.

Safer Business Growth

Approved cover can help a business make better-informed decisions when extending credit to customers.

Export Customer Protection

Suitable policies may protect approved overseas customer debts and specified political or transfer risks.

Support for Invoice Finance

Insured receivables may support discussions about customer funding limits, although the invoice finance provider makes the final decision.

How Does Trade Credit Insurance Work?

  1. The business explains its sales ledger. The specialist considers turnover, customers, credit terms, sectors and previous bad-debt experience.
  2. The insurer assesses the risk. It decides which customers can be covered and sets the relevant credit limits and policy conditions.
  3. The policy begins. The business supplies approved customers on credit while following the required credit-control procedures.
  4. Customer risks are monitored. Credit limits may be maintained, increased, reduced or withdrawn as circumstances change.
  5. Late payments are reported. The business must follow the policy’s reporting and debt-recovery requirements.
  6. An eligible claim is considered. If an insured loss occurs, the insurer assesses the claim under the policy terms and agreed level of cover.

Does Trade Credit Insurance Cover Every Unpaid Invoice?

No. Cover applies only within the policy’s agreed terms and customer credit limits. A disputed invoice, unapproved exposure, late report or sale made after cover was withdrawn may not qualify.

In addition, policies can include an excess, uninsured percentage, waiting period and other exclusions. The authorised insurance specialist will explain these before cover begins.

Which Businesses May Benefit From Bad-Debt Protection?

Trade credit insurance may suit SMEs that sell goods or services to other businesses on credit terms. It can be particularly relevant when one customer represents a large part of the sales ledger or when the company is entering a new market.

  • Manufacturers and engineering companies
  • Wholesalers, importers and distributors
  • Recruitment and temporary staffing businesses
  • Haulage, courier and logistics companies
  • Commercial printers and packaging suppliers
  • Construction suppliers and qualifying contractors
  • Food, drink and agricultural suppliers
  • Technology and professional service companies
  • UK exporters selling to overseas business customers
  • Businesses with significant customer concentration

What Types of Cover May Be Available?

Whole-Turnover Cover

Protect a wider eligible sales ledger under one policy, subject to individual customer limits and policy conditions.

Selected Customer Cover

Some providers may consider protection for selected key customers or specific risks rather than the complete ledger.

Domestic Trade Cover

Protect approved debts owed by eligible UK business customers.

Export Credit Cover

Protect approved overseas customer debts, subject to the buyer, country and policy conditions.

Availability varies between insurers. Therefore, the specialist will confirm which structure is suitable after learning about the business and its customers.

Trade Credit Insurance or Bad-Debt Protection?

Trade credit insurance is a standalone insurance policy covering approved customer debts under its terms. Bad-debt protection may also be offered alongside an invoice finance facility.

Both can reduce the impact of an eligible customer failure. However, the insurer, credit limits, level of protection and claims procedures may differ. Consequently, the business should understand exactly what is covered and who provides the protection.

Go-Factor Insight: Protect the Profit Already Earned

Businesses often check whether a customer can pay before accepting an order. However, a customer’s financial position can change after the goods have been supplied and the costs have been paid.

One substantial bad debt can remove the profit earned from many good sales. Therefore, credit insurance is not only about recovering an unpaid invoice. It is about protecting the work, cash and profit already invested in that customer.

Helen Boylett-Smith, Founder of Go-Factor

Can Trade Credit Insurance Support Invoice Finance?

Potentially. Invoice finance providers set funding limits for individual customers. Where approved credit insurance is in place, the provider may consider the protection when deciding how much it is prepared to fund.

Nevertheless, insurance does not force an invoice finance provider to increase a limit. The funder will still consider the customer, invoice, policy terms and its own risk requirements.

How Much Does Trade Credit Insurance Cost?

The premium depends on the insured turnover, customer profile, trade sectors, payment terms, countries, claims history and level of cover. The policy may also include an excess or an uninsured share of each claim.

For that reason, the lowest premium does not always provide the best protection. Customer limits, exclusions, reporting deadlines and claims support can be equally important.

How Go-Factor Helps

  1. We have a short, friendly conversation. Go-Factor learns about the business, customers and the debts it wants to protect.
  2. We identify an appropriate specialist. Go-Factor introduces the business to a suitable trade credit insurance partner.
  3. The specialist explains the options. The authorised provider or broker requests the necessary information, presents the available cover and explains the policy terms.
  4. The business decides whether to proceed. Cover begins only after the relevant insurer or authorised specialist confirms acceptance and the policy requirements are met.

Why Speak to Go-Factor?

Go-Factor works with businesses that rely on customers paying invoices on time. Therefore, we understand how a bad debt can affect working capital, invoice finance and plans for growth.

A short conversation allows us to understand the concern and make an introduction to an appropriate specialist. The authorised insurance provider or broker then explains the cover, information required and policy terms.

Go-Factor is an independent UK commercial finance broker, an NACFB member and the 2023 NACFB Intermediary Excellence Broker of the Year. Helen Boylett-Smith brings more than 30 years of commercial finance experience to the business.

Frequently Asked Questions

What does trade credit insurance protect?

It can protect eligible insured debts if an approved customer becomes insolvent or remains unable to pay within the circumstances covered by the policy.

Does a policy pay the full invoice value?

Not necessarily. Policies usually protect an agreed percentage and may include an excess, uninsured amount, maximum liability and other conditions.

Can an SME obtain trade credit insurance?

Yes, policies may be available for SMEs as well as larger businesses. Suitability depends on turnover, customers, credit terms and the cover required.

Can overseas customer debts be protected?

Export credit insurance may protect approved overseas debts. However, the insurer will consider the buyer, country and relevant political or transfer risks.

Can existing overdue invoices be insured?

Insurance is normally intended for eligible trade covered during the policy period. Existing overdue or known problem debts may not qualify.

Does Go-Factor provide the insurance?

Go-Factor makes an introduction to an appropriate specialist. The relevant authorised insurance provider or broker assesses the business, explains the policy and provides any agreed cover.

Could One Unpaid Customer Invoice Damage Your Business?

Have a short, friendly conversation with Go-Factor about your customers and the debts you want to protect. We can introduce you to an appropriate trade credit insurance specialist.

Talk to Go-Factor About Bad-Debt Protection

Insurance cover is subject to eligibility, underwriting, customer credit limits, policy terms, exclusions and insurer approval. Go-Factor does not provide or underwrite the insurance.