Owning a business is a truly wonderful thing. Being able to watch your entrepreneurial vision transform into a reality is one of life’s greatest achievements. However, just like owning your dream home, it also comes with some not-so-desirable housekeeping requirements.
In terms of business ownership, one of the most arduous chores is having to deal with customers who don’t cough up the cash they owe, and the detrimental impact this has on your business.
Statistics revealed by business intelligence platform, Red Flag Alert last year revealed that UK companies lost £1.86 billion in unpaid invoices during 2020 – an increase of £20m when compared to 2019’s numbers.
Fortunately, that’s where Debtor Protection Insurance swoops in to save the day.
Through answering some Debtor Protection FAQs, in this article, we cover:
- What Debtor Protection Insurance is and what it covers
- Why businesses might choose to buy it
- How the protection process works
- How much you might expect to pay for Debtor Protection cover
Let’s dive straight in!
What is Debtor Protection Insurance?
Debtor Protection is a type of insurance cover put in place to safeguard a business against customers who don’t pay their debts, or who cease to trade before they’ve settled an outstanding balance.
It enables businesses to insure themselves against the non-payment of invoices but more importantly, protect against the consequences they would otherwise have to face at the hands of customers who won’t – or can’t – cough up the cash.
It also offers reassurance in a situation where your business has to spend money on services or materials upfront in order to carry out work for a customer. If the customer ceases to trade before the work has been carried out, you run the risk of losing a lot of cash and swallowing up valuable finances for nothing.
The benefits of this type of insurance cover
So, why do so many businesses choose to fork out for Debtor Protection cover?
Well, because:
- It helps maintain cash flow when customers fail to pay money owed, or cease to trade.
- It helps support business-as-usual, even when you are struggling with late payments.
- Generally, it tends to be a low-cost, affordable service (so well worth the investment).
- Many services cover both UK and overseas debts.
- Gives you reassurance and peace of mind so you can concentrate on more important things.
How does it work?
If you invoiced a customer and they fail to pay you, Debtor Protection Insurance means that any financial loss can be absorbed by your provider. You won’t have to suffer the fallout of the financial blow yourself.
In terms of how payments are made, how long it takes to fulfil a claim and other granular details of the process, you’ll need to ask each individual insurance provider as this can differ from policy to policy.
Who needs this type of cover?
Debtor Protection Insurance is something businesses of all shapes and sizes can benefit from but it’s particularly useful for small businesses and start-ups who have eyes on every single penny that goes in and out of the accounts.
For larger, established businesses with a more solid cash flow, late payments might not be such a pressing matter, so insuring debtors may not be top of the priority list. Still best practice (if budgets permit) nonetheless.
How much does Debtor Protection Insurance cost?
You won’t need us to tell you that the cost of business insurance can vary quite significantly from provider to provider. That makes answering this particular question a little tricky and for that reason, we suggest doing your own research to find out.
How much you pay for your Debtor Protection Insurance cover will depend on a number of variable factors such as how old your business is, your typical monthly turnover, how much is owed to you in invoices, your history of bad debt, as well as any information you provide about outstanding aged debtors.
As with any insurance cover, it’s always a good idea to do your homework and shop around before signing your name on any dotted lines.
Get a few quotes and go through all of the small print with a magnifying glass to ensure you’re working with a reputable provider who will be able to protect your business when it comes to the crunch.
Looking for more support with your business finances? Ask a task question for free with our handy online tool and our experts will give you the As to your Qs at no extra cost!
