As part of the Sonovate offering we include Bad Debt Protection to provide security and peace of mind in the event of non-payment or insolvency by your clients.
This guide is to explain the in’s and out’s of the service and any limitations of which you need to be aware.
- What is Bad Debt Protection and why do I need it?
- How much does it cost?
- What happens if limits can’t be obtained or are removed?
- How does it work in the event of a payout?
- How many times can I claim?
- Who do we partner with?
What is Bad Debt Protection and why do I need it?
How would your business survive if it suffered a bad debt? Bad Debt Protection is cover put in place to reduce these concerns and safe-guard against non-payment or insolvency of your clients.
It has huge benefits as can ensure cashflow is not affected and you can plan more effectively for the future.
The main points are detailed below:
- 90% of the value of the net invoice is covered – e.g. if there was a £10,000 + VAT (£12k) bad debt then a potential* pay out of £9,000 would be made. The VAT would not be paid from bad debt protection (but can be reclaimed from HMRC on the VAT you’ve already paid!). There are some caveats as detailed on the HMRC website - https://www.gov.uk/vat-returns/fill-in-your-return. This process would be completed outside of Sonovate by yourself or your accountant.
- Bad debt protection is only available on Funding where client payment terms are < 60 days - Funding with terms over 60 days will be considered on a case-by-case basis.
*Subject to a minimum deductible of £1,000
- The balance of the debt must be £1,000 or more to qualify.
- Cover is backdated to invoices outstanding prior to the bad debt occurring.
- All of your clients are credit checked prior to funding so you are informed as to their risk level assuming all collections processes had been correctly followed.
How much does it cost?
Bad debt protection is included in our price as standard and there are no hidden costs such as credit check fees, annual renewal fees or credit limit fees!
What happens if limits can’t be obtained or are removed?
Obtaining credit limits on clients is based on their risk profile. We look at various elements of their overall financial position including their business model, most recent filed accounts, payment history or current company events such as mergers, buy-outs, sales etc. Other non-financial factors like reputation are also considered.
Given the unique structure, funding and reporting of entities within the public sector, including blue-light services, local authorities central government departments and not-for-profit companies, coverage is not typically offered for these entities.
Unfortunately there are no guarantees and there are situations whereby we are unable to obtain the levels of cover required or not at all - for more information see: http://help.sonovate.com/customer/faqs-and-guides/credit-control-and-risk
On occasion, we will also see limits being withdrawn due to information obtained by the insurers. Any invoices raised before the removal would be covered under the policy and would mean that anything invoiced after the limit has been withdrawn (e.g. after the grace period has expired) would not be covered.
Should negative information result in the removal or reduction of a limit then you typically have a 30 day grace period prior to the removal date. Please note: that in some extreme and rare situations, the grace period can be reduced, or removal can be immediate if the information is deemed too adverse to provide.
In general, we would use the 30 days grace period to react and understand the nature of the information and look to have the cover maintained. Sonovate will always do our best to guide you through these more challenging situations but may need your support in gathering information (management accounts for example) to appeal a decision. We are limited to an extent by the performance of the client in question but will always try to find solutions to secure the best level of cover as possible.
How does it work in the event of a pay-out?
In the event that a claim needs to be made, Sonovate will submit all paperwork confirming that our collections process has been followed correctly and the Credit Insurer will review. It is crucial that we follow a structured process throughout the lifecycle of the debt with relevant and timely chasers so please do not be concerned if these are being issued.
A claim can be made under the following circumstances:
- Insolvency: this is when a company is not able to repay its debts when falling due.
- Protracted Default (PD): when a company fails to pay the contractually agreed debt within the agreed period. In line with our collection policy, we will usually pass a claim to our credit insurer when the oldest invoice is 60-90 days past due.
When a claim is made on our policy, we will manage all the administration and correspondence with our credit insurer and seek to recover the unprotected part of the debt from you when we pass the claim.
How many times can I claim?
One claim can be made per client that has protection. It is unlikely that cover would be obtained on a company once a claim had been made against them.
Who do we partner with?
Our Credit Insurance partnership is with Atradius and, we have a relationship with a large broker, Arthur J. Gallagher & Co, who support Sonovate in front of the Credit Insurer's underwriters. Arthur J. Gallagher & Co are a huge broker - that have great credit risk relationships across the globe and can utilise the external markets and other insurers, if required.
This relationship with the broker ensures that the protection we provide to you is in line with market rates and the best cover available.
Download a copy of Bad Debt Protection