A credit limit is the maximum amount of credit that a company is willing to extend to their customer for products or services sold. Terms of payment will have been agreed whereby the customer should pay for the goods/services bought within this agreed period. The Credit Insurance policy will insure the amount outstanding and if the payment cannot be made by the customer through either insolvency or inability to pay, then a claim should be made for the outstanding amount.
For your credit limits to be insured the Underwriter (Insurer) has to agree the credit limit amount to be covered, this is done in a number of ways:
Underwriter Set Credit Limits
These are agreed by applying to the Underwriter through an on-line system specifying who your customers are and what credit limit you would like to insure. Credit Insurers have access to credit information and often hold further more detailed information giving you the benefit of an informed third party view of the credit rating of your customer . Where an underwriter is unable to agree the full amount the policy holder will be made aware of the reasons and invited to appeal if they hold more detailed information.
Discretionary Credit Limits
The majority of Trade Credit Insurance policies will have a set 'discretionary credit limit' amount. This is a maximum amount that the Underwriter has agreed to let policy holders insure their customers up to, without having to apply for a written limit as above. In order for the credit limit to be automatically insured, the Underwriter will have a set of rules to follow for the discretionary credit limit to be justified. The usual methods of justification are either a positive credit report from an approved Status Agency, or positive trading history.
Top Up Credit Limits
All the major Underwriters in the UK now offer some form additional cover for credit limits that are seen as exceptionally high risk for an additional price. This can be of particular importance if an insured credit limit is needed to support funding requirements.
Perhaps all of the above just sounds too complicated and time consuming, you just want to insure your company against bad debt without all the extra administration. For businesses with a smaller turnover (up to £4m) this can now be a reality. A policy offering 'blind cover' means that your whole ledger is covered without having to apply for any insured credit limits or justify any discretionary credit limit amounts, up to an agreed limit. This kind of policy is perfect for a small business who wants to concentrate on their business, not their Credit Insurance policy.
To find out whether cover is available for your key customer(s), please contact us for a no obligation review.
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