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How to Prevent Rejected or Reduced Trade Credit Insurance for Businesses?

In recent years, it has been extremely difficult for businesses. Whether this is to the pandemic, Brexit, and now the war, many businesses have been affected in ways in which they never knew. During the time of the pandemic, businesses were given some help in the form of loans, grants, and furlough schemes from the government which acted as a lifeline for many.

Although this was an amazing effort, this was unfortunately only delaying the inevitable for some businesses. Now that there is no funding for these businesses, we have seen many more businesses become insolvent.

For those businesses lucky enough to have lasted the pandemic, many businesses are now looking for other options for how they can get back to where they were pre-pandemic and grow their business.  This can be difficult as there are many things to consider when trying to rapidly grow your business in a recovering economy.

For example, it’s great to want to grow your business expeditiously, but if you grow too fast, it can do more harm than good. Growing your business too fast will result in an overload of business which you simply won’t be able to cope with as you won’t have the resources causing cash flow issues and then insolvency. Once the business has failed, these businesses will turn to their claims on their trade credit insurance policy.

Now more businesses are needing help, and trade credit insurance brokers are becoming much more critical. Brokers are now looking for failures in compliance with policy terms and conditions.

Business failures are a huge hindrance, and depending on how serious the claim is, businesses could face a reduced or even rejected claim which will, in turn, lead to a business going insolvent. In this article, we will go through some helpful tips on how to prevent credit insurance claims from being reduced or rejected.

What is Trade Credit Insurance 

Trade credit insurance is a policy for businesses that are owed money from their customer for services or products that they have not paid for. These are also known as bad debtors. Credit insurance also helps businesses differently.

Credit insurance helps businesses in the same way that their customers don’t pay. This is an extra lifeline and gives businesses some breathing space until their customer has paid them, so it can sometimes be thought of as a chain. This in turn helps to make accessing the funding easier at a competitive rate.

How Can I Prevent a Rejected Trade Credit Insurance Claim?

There are three main ways in which you can help to minimize the risk of your claim being reduced or even worse, rejected. If you have not made a trade credit insurance claim before, it is best to do your thorough research before going ahead with it. Speaking to a broker can help to answer any queries that you may have about the subject. Follow these tips and you shouldn’t have a problem.

Documentation is Crucial 

Credit insurance claims are reduced and rejected a lot, especially if a business doesn’t have the relevant documentation the insurer needs for evidence. The evidence is to show that you have met the policy terms and conditions. A basic example of this would be if a business could not provide its delivery notes. If a business fails to show its well-documented transactions, the claim will be thrown out.

This is easily avoidable if you are someone who documents everything and is organised. By keeping all your documents safe, you won’t have a problem with your claim in terms of documentation. It is essential that you document all of your transactions and everything else you feel will be important at some time.

It is much easier in 2024 as everything is digital meaning that everything can be saved onto your computer, just make sure you have a secure password. Follow this step and you will reduce the risk of your trade credit insurance being reduced or rejected.

Agree on Credit Limits in Advance

Agreeing on a credit limit before committing to a deal is essential if you want a full claim, even if it is for a quick deal. Allowing debt to build up before you have even agreed to the claim can have disastrous effects on your business and can put a lot of pressure on the business’s affordability which could have easily been avoided.

This happens a lot, an example of this would be a business trying to get a quick deal so they accept the agreement without sorting a credit limit. This can end up disastrous if the customer can’t pay and can result in a one-way ticket to insolvency.  Instead, ensure that you have a credit limit in place before you accept any deals from potential customers.

The reason why this can cause insolvency is that the credit limit will only apply to the credit that has been when the limit was agreed. This means if the customer can’t pay you back, the credit insurance claim will only cover when you started the agreement meaning you will lose all the money you lent them before the credit limit was agreed.

Be Aware of Fraud

With a recovering economy, scrupulous characters show their face. Fraudulent activity, unfortunately, becomes much more common in these economic times, and if you have been subject to fraud, your trade credit insurance policy does not cover you.

There are many forms of fraud, but the most common form is buyer impersonation. With the policy not covering fraudulent activity, it is up to you as a business to do all the relevant credit checks and due diligence to see whether the person in question is who they say they are. This can in turn help to protect you, your business, and your policies.

There are many ways in which you can reduce the risk of your trade credit insurance being rejected or reduced, but if you need more help, then it is always best to speak to credit insurance brokers to give you all of the relevant information.

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