How does credit insurance work?

Credit insurance is a dynamic form of insurance that is designed to protect the lifeblood of many companies – the sales ledger. It works in conjunction with the credit management function to enhance the processes and procedures but not to replace them.

From the start of any policy it is necessary to establish cover on each customer to whom credit is granted by way of a credit limit. The credit limit should reflect the maximum that is likely to be outstanding at any time with the customer. Of course businesses do not stand still from one day to the next, which means that credit limits may need to be increased. Requests for increases in credit limits can be made at any time during the policy. Holding a valid credit limit on the correct contractual principal is essential in order to justify granting credit in the event of a claim.

In the same way that setting suitable credit limits is essential, so is chasing overdue debts. Under the policy it is necessary to chase overdue debts and notify insurers if payment is not secured after a particular agreed date. In the event that a customer still fails to pay, it will then be necessary to commence a more formal process, by passing the debt to insurers for collection.

Where a customer has become insolvent with an unpaid debt or has otherwise failed to pay, a claim can be made and where there is written evidence of the debt which has been duly notified to insurers.