Most companies won’t burn down, but a fire is a catastrophe for any business that is not insured against such an incident. The scary news is that the chances of your company losing money on outstanding receivables are higher than those of losing your property to a fire.
Often, even small delays in payments may have serious effects on the liquidity of a business. Andrew Haynes, customer relationship management director at KreditInform explains how insurance against single debtors can protect your business from such losses.
What is single debtor cover?
Single debtor insurance allows a business to protect itself against high-risk clients. Take the example of a building contractor who works in the housing sector and buys bricks worth R50 000 from his supplier every month. The relationship has existed for two years and the contractor pays on time, every time. He secures a contract to build six schools and he now wants to buy bricks to the value of R500 000 every month. In this case, there is a solid track record in place to show that the builder is creditworthy; however, he is growing his business by moving into a sector in which he has no experience and he is also going to be spending ten times more than he was previously. Because the supplier does not know whether the contractor will be able to manage the change in his business, they will apply for single debtor cover to protect them if the contractor is unable to pay.
Pros and cons.
Single debtor cover is an important form of risk management. It also gives you the option of insuring the business against one customer without having to incur the costs of full book cover.
The process of qualifying for single debtor insurance is rigorous and a significant amount of information is required before the policy will be granted. This is simply because of the risk involved for the underwriters. When they insure a whole debtors’ book, the good payers tend to make up for the bad ones. With single debtor cover, that is not the case.
Application procedure.
To apply for single debtor cover, subscribe to KreditInform and request a report on the customer in question. This is a vital source of information and ensures that you have the most recent credit and risk report available on the customer. The credit manager looks at how they pay other suppliers and rates their payment trends.
If the report is positive, KreditInform submits a proposal on your behalf to the underwriters, with whom the company has a solid and longstanding relationship. The underwriters in turn prepare a proposal for you, provided the debtor is approved, and KreditInform submits the proposal to you for your approval.
The application process takes three to five days, but can be accelerated. Many diverse requests for single debtor cover are processed. Insurance is provided for debt ranging from R10 000 to R10 million. Each request is examined on a case-by-case basis.
Costs involved.
Cover costs between 0,8% and 1,2% of the total amount insured. You will be required to disclose how much the debtor owes you on a monthly basis. If you have been insured for R3 million debt, but your client owes you R1 million, your premium will be calculated as a percentage of the actual debt.
Payout.
Claims are paid either on provisional liquidation of the debtor or, under certain circumstances, where there is persistent default – longer than six months, for example. It all depends on the type of policy you take out.
For more information call +27 11 777 2845 or +27 21 715 1180 or visit www.kredit.co.za