Although no business likes to think about it, it’s a fact of life that everyday businesses can enter formal insolvency. If this business is a customer of yours, it can prove extremely difficult to recover what you are owed.
How much turnover would be required to replace a £10,000 bad debt? Depending on the business’ net profit margin (NPM), a £10,000 bad debt requires:
1% net profit margin
5% net profit margin
10% net profit margin
Benefits of Credit Protection
Peace of mind
As long as you are trading within the agreed credit limits and adhere to the terms and conditions of the facility, you can relax knowing that if any of your customers go into formal insolvency or engage in a protracted dispute, your business will be free from the risk of non-payment.
Replace turnover quickly and expand into new markets. Use the financier’s customer risk departments to undertake due diligence into the creditworthiness of your existing and new debtors, so that you can ensure that your growth is safe and protected.
Types of Protection
Bad Debt Protection helps you to manage the risk associated with new customers and markets, but the threat from existing customers is also reduced. Protection can be tailored to your businesses requirements but typically three types of facility are available:-
Whole of Turnover
This is the most common and wide ranging type of policy. It covers your entire sales ledger against non-payment through default or Insolvency and is structured to suit your company’s specific needs and objectives.
Designed to cover a named debtor, this type of protection is usually applied to the largest account on the sales ledger. The business is then free to pursue other opportunities, confident in the knowledge that its greatest risk is protected.
Most medium and large businesses can absorb a reasonable level of bad debt, but for any company, a single major catastrophe or series of failures can be devastating. Catastrophe protection is designed to protect you if the worst happens.
Larger debtors are usually vetted via a quick response online credit limit request system or in consultation with the provider’s credit risk specialists. However, for smaller debtors a discretionary facility can be established. This provides the dual benefit of allowing speedy decisions to be made at your own discretion while ensuring your ledger is completely protected.
Oakmead Finance Ltd is a company registered in England & Wales with company number 09478864. The registered office address is 33 Clarendon Way, Chislehurst, Kent, BR7 6RE.
Credit Protection facilities are not regulated by the FCA.