Lloyds TSB Commercial Finance has launched a service to help SMEs guard against bad debts, as insolvencies are forecast to reach record highs.
Debtor Insurance protects a firm’s sales ledger by insuring up to 90 per cent of any bad debts, both in the UK and internationally, suffered as a result of customer insolvency or the non-payment of invoices.
About one in every 50 businesses will fail this year alone, with tens of thousands of insolvencies predicted over the next 18 months as a result of poor cash management, according to a report by BDO Stoy Hayward*.
Simon Featherstone, managing director of Lloyds TSB Commercial Finance, said: “Even the strongest companies can be significantly affected if a major customer suddenly fails. One bad debt can have a dramatic effect on a firm’s balance sheet and wipe out years of hard work.
“A £5,000 bad debt can create a loss that could require £50,000 of turnover for the business just to stand still. We’re seeing more demand from SMEs for a safety net and launched the scheme to meet this need.”
As well as being available online to Lloyds Banking Group customers, it can also be used by non Lloyds Banking Group customer and all firms that sell to other businesses on unsecured credit terms, as long as they have more than one customer and an anticipated turnover of more than £200,000.
The scheme includes a credit monitoring service which alerts businesses to changes in the circumstances of their customers, so they can identify a potential risk before it becomes a bad debt. Companies are also able to interactively manage the facility online and request limits on their customers.
If cover cannot be provided on at least 55 per cent by value of a customer ledger within 30 days, the insured will be offered a full refund. The service also allows 30 days notice to be given at anytime to cancel the policy.
If a customer grows by up to 20 per cent beyond what was originally estimated, no additional premium will be required.
Carneco Foods Ltd
Amongst Lloyds TSB Commercial Finance’s customers who have benefited from Debtor Insurance since it was piloted in late 2008 is Essex-based Carneco Foods Ltd.
Established in 1994, Carneco Foods is a £3,500,000 turnover wholesale food supplies company.
Carneco Foods was concerned about the risks to its business if a customer failed and so approached Lloyds TSB Commercial, which it has banked with since inception, for advice. The bank introduced the firm to Lloyds TSB Commercial Finance, which provided Debtor Insurance.
Natalie Peacock of Carneco Foods said: “In the current climate, it has never been more important to insure your debts and manage risk. Debtor Insurance provides peace of mind that if a customer files for administration, our working capital is protected.
“Debtor Insurance is an important part of our growth strategy as we can continue to cover our expanding customer base.
“The protection offered by this service means we can reduce the amount of money we need to set aside to cover risk of bad debt and instead, free-up working capital to enable us to seize growth opportunities.”
For more information on Lloyds TSB Commercial Finance’s Debtor Insurance product, please call 0800 587 5180 or visit www.debtorinsurance.co.uk.
*BDO Stoy Hayward, Summer 2009
This insurance is provided by Lloyds TSB Commercial Finance Limited and underwritten by Chartis Insurance UK Limited.
Lloyds TSB Commercial Finance Limited is an appointed representative of Chartis Insurance UK Limited, The Chartis Building, 58 Fenchurch Street, London, EC3M 4AB, which is authorised and regulated by the Financial Services Authority (FSA register number is 202628).