Factoring Companies Guidebook

An insurance policy which protects the Client from customer bad debts and may include cover in respect of work in progress; exports and Protracted default (non-payment of a debt after a set period.)

Concerns

Relying on insurance company credit limits to set Funding limits, where we are not Joint Insured and is provided promptly with amendments on the policy, may lead to out of date information being used. This may cause us to be overly restrictive on our funding, or possibly over exposed where the insurer has reduced or cancelled the limit due to adverse information. It is of paramount importance that we understand the Terms & Conditions of the policy, its coverage and claims procedures.

Where comfort is gained from the policy, we should monitor the Client's adherence to its Terms & Conditions, ensuring that premiums are up to date and the returns filed. It may also be the case that the insurance company requires assignment of the debts, to facilitate recovery action by them against the debtor, thereby preventing assignment to us.

Identification

Make enquiries of the Client to establish if a bad debt insurance policy is held and identify through the cash book or bank statements any payments made to insurers.

Common Insurance Companies

• NCM
• Euler Trade Indemnity
• Coface
• Gerling Namur

Treatment

Copy policies should be obtained and reviewed regularly along with the payment of premiums and adherence to Terms & Conditions e.g. reporting overdue accounts and/or turnover by country.

Credit Limit lists should be monitored on a regular basis to ensure we have been notified of all credit limit changes.

Ensure the policy notes the invoice finance company as 'Loss Payee' or 'Joint Insured'. Joint Insured entitles us to be advised of any policy and credit limit changes. It also allows us to continue paying premiums to assist with recovery of funds in a collect out scenario. However we can elect not to continue paying the premiums should we have sufficient security in the debts.