A large number of credit insurance policies are written on this basis, particularly in the SME and Mid-Market arenas.
This means you provide the insurer with a forecast of your annual turnover but you can exclude customers where you get paid before the goods are despatched or the customer is not a credit risk such as government bodies. Additionally, the underwriter will allow you to exclude turnover with customers which can’t be insured due to their poor risk grade.
The resulting forecast, after deducting these items, is known as the insurable turnover and is used as part of the calculation to arrive at the premium cost.
The basis of a whole turnover policy means that you must apply for credit limits in respect of all customers i.e. you do not have the option to select ones you wish to insure and ones you do not. That said, an underwriter may agree for certain specific customers to be excluded due to their low risk grade i.e. blue-chip customers (publicly quoted companies in the main) and these exclusions will be noted on the policy.
We bring value by understanding the diversity of options available from today’s credit market whilst recognising that your business is unique. We understand that you will need cover correctly tailored to meet you individual needs.
Most whole turnover policies carry a facility for you to set your own credit limits below a certain level, typically £5,000 and above. Essentially the underwriter sets an inner policy limit within and also sets the criteria to justify such a credit limit. These criteria typically include one of the following methods:
The underwriter will apply an excess to the policy, designed to filter out low level losses and / or to be deducted from a claim. These tend to range from £500 upwards and can be applied in a number of ways, impacting upon the claim payment.
Above the Limit of Discretion, you must apply to the underwriter for the required credit limit who will assess the financial information held for the customer and provide a limit decision. The decision provided may be below the the limit requested if the financial information does not justify the size of limit requested. All credit limits are monitored by the underwriter for changes in your customers risk and you will be advised through an amended decision should the risk deteriorate. Generally speaking, nil decisions mean the risk is too high to justify any credit limit and will also cancel the limit of discretion.
Limit applications are generally made by using the insurers on-line system.
Most underwriters offer credit limits that can be increased or reduced by either you or the underwriter however some underwriters will offer non-cancellable limits i.e. the underwriter is not able to cancel the credit limit. That said, the following reporting requirements will still apply to non-cancellable policy limits.
The underwriter sets a mutually agreeable “on stop” date within the policy. This date or period is normally a certain number of days past the invoice due date. Once a customer’s invoice breaches this date or period, you are obliged to report the customer to the underwriter. The credit limit is suspended or cancelled at this point and third party debt collections must be taken. Should a customer show signs of financial distress ahead of the “on stop” date, the customers should be reported and placed “on stop”.
Once reported, some insurers include the benefits of their own debt collectors and solicitors, who may become involved to assist with the debt collections process with a contribution to such costs, sometimes up to 100%.