What most providers won’t tell you about Trade Credit Insurance (TCI) sometimes referred to as "Bad Debt Protection", is it’s not a product you can purchase then leave on the shelf collecting dust until you need it.
Unlike most common commercial insurance products, TCI is a business solution that requires active participation and integration into everyday credit management procedures. Although this sounds involved and complicated, it's actually the beauty of the product and a major positive for your business once implemented correctly.
So what does it do?
At its core a well placed TCI policy will protect your business from losses brought on by clients failing to pay invoices, due to insolvency or an extended payment delay (protected default). There are a few other triggers, but these are the main two most are concerned with.
How does it work?
The easiest answer...it’s a 'two-stage product'.
Stage one, you establish the policy itself which on its own doesn’t do much.
Stage two, is where it gets interesting and useful, as it is when you start to endorse clients to the policy for active cover. As you have a third party (the insurer) with a vested interest in getting their decisions right and constantly monitoring them, this becomes protection on each client endorsed. This helps you trade with clients you know are more creditworthy, but also warns you if they start to have issues down the road.