At Champion Insurance Group, part of the Champion Accountants group, we help business owners identify and manage risks that could affect growth and profitability. In this quarter’s spotlight article, Lauren Williams of SRG Trade Credit, one of our trusted specialist partners, explains how businesses can protect themselves against one of the most overlooked threats to financial stability: customer non-payment. She also considers why businesses that already have trade credit insurance should regularly review whether their existing cover remains suitable.
For an owner-managed business, cash flow is often the engine that keeps everything moving. It funds wages, supplier payments, investment and day-to-day operations. Yet businesses offering credit terms can face significant financial pressure when a customer pays late, disputes an invoice or becomes insolvent.
Even one unpaid invoice can have a disproportionate impact on a smaller business, particularly where a major customer represents a meaningful share of turnover. Trade credit insurance can provide protection against this risk, helping businesses continue to trade with greater confidence.
For businesses that already have cover in place, it is equally important to ensure the policy continues to reflect the way the business trades today. Customer portfolios, turnover, credit limits and markets can all change, meaning a policy that was appropriate when first arranged may not provide the same level of protection several years later.
What is trade credit insurance?
Trade credit insurance protects the money owed to your business by customers. Depending on the policy, it can compensate the business for up to 90% of an outstanding invoice if a customer becomes insolvent or fails to pay.
However, its value goes beyond making a claim. It can also provide access to credit information and ongoing monitoring, helping business owners make better-informed decisions about who they trade with and how much credit they extend.
Existing policyholders should also consider whether the credit limits provided by their insurer remain sufficient for their current trading relationships. If sales to a customer have increased but the insured credit limit has not, part of the outstanding balance could be left uninsured.
Trade with greater confidence
When economic conditions are uncertain, business owners may understandably become more cautious about taking on new customers or agreeing larger contracts.
Trade credit insurance can provide additional reassurance when considering a new opportunity. It may allow an SME to increase a customer’s credit limit, support a larger order or explore new domestic and international markets while reducing its exposure to non-payment.
This can be particularly valuable for growing businesses that do not want one customer default to undermine years of hard work.
For those already insured, growth can also be a reason to revisit the policy. Entering a new market, winning a large contract or becoming more reliant on a particular customer may alter the risk profile of the business and require changes to the existing cover.
Make better credit decisions
SMEs do not always have the time or resources to carry out detailed credit checks or continually monitor the financial health of every customer.
Trade credit insurers assess and monitor businesses across a wide range of sectors and markets. This information can help identify changes in a customer’s financial position, allowing the insured business to respond before a late payment becomes a serious bad debt.
This gives business owners an additional source of insight alongside their own knowledge of the customer and trading relationship.
Policyholders should make full use of this information rather than viewing trade credit insurance solely as protection after a loss. Regularly reviewing buyer limits, payment patterns and insurer decisions can support stronger credit-control procedures and highlight emerging risks.
Protect working capital and profitability
When an invoice is not paid, the loss is not limited to the amount shown on the invoice.
The business may still have paid for materials, labour, transport and other costs associated with fulfilling the order.
Replacing the lost profit can require a significant amount of additional sales. Trade credit insurance helps protect margins and reduces the need to retain large cash reserves purely to absorb potential bad debts. This can leave more working capital available for recruitment, equipment, stock and other growth opportunities.
However, the effectiveness of a policy depends on the cover matching the business’s actual exposure. Existing policyholders should check that declared turnover, customer information and credit limits are kept up to date, and that staff understand any reporting requirements, overdue account procedures and claims deadlines.
Support access to finance
A strong and well-protected sales ledger may also make a business more attractive to lenders and invoice finance providers.
Where receivables are insured, a finance provider may view them as lower risk. Depending on the circumstances, this can support discussions around borrowing facilities, funding limits and working-capital arrangements.
Businesses with an existing policy should consider whether their lender or invoice finance provider has specific insurance requirements and whether the policy structure continues to support their funding arrangements.
Flexible cover for different businesses
Trade credit insurance is not limited to large companies or exporters. Cover can be tailored to reflect the size and structure of an SME, including:
- protection for one particularly important customer or contract;
- cover for selected customer accounts;
- whole-turnover protection; and
- cover for domestic and export sales.
Policies can also accommodate businesses issuing a high volume of smaller invoices, as well as those completing fewer but higher-value transactions.
For existing buyers, a review can help determine whether the current policy structure is still the most appropriate. A business may have outgrown selective cover, developed a concentration of risk around one customer or found that its current excess, indemnity level or policy conditions no longer suit its needs.
It can also be useful to review the wider market at renewal. Insurer appetite, pricing and available cover can change, and an independent review may identify opportunities to improve the scope, structure or cost of the policy.
Is your sales ledger adequately protected?
Many owner-managed businesses insure their premises, vehicles, equipment and employees but leave one of their largest assets – the sales ledger – either uninsured or inadequately insured.
Trade credit insurance cannot prevent every customer from experiencing financial difficulty. It can, however, provide a valuable safety net, improve the quality of credit decisions and give business owners greater confidence when pursuing new opportunities.
Where your business offers credit terms, it is worth considering how a significant late payment or customer insolvency would affect your cash flow.
For businesses without trade credit insurance, this may mean exploring whether cover would be appropriate. For those already insured, it means checking that the policy still reflects current turnover, customer exposures, credit-control processes and future plans.
The right protection – reviewed regularly – can help safeguard profitability, strengthen resilience and allow you to focus on growing the business.
Find out more
Whether you are considering trade credit insurance for the first time or would like an independent review of your existing arrangements, Dan Maloney, Managing Director of Champion Insurance Group, can help you assess the risks within your sales ledger and consider whether your current or proposed cover is appropriate for your business.
For an initial, no-obligation conversation, contact Dan:
Email: Dmaloney@ChampionInsure.co.uk
Office: 0161 515 8530
Mobile: 07549 526 551
