There is nothing worse than supplying goods only to find that you are not going to be paid because the customer has gone out of business. As you would expect, you can buy protection for this eventuality in the form of an insurance product and from April 2009, the government has become a player in the market.

Called ‘credit insurance’, this type of policy will pay out 80 to 100 per cent of an invoice value (depending on the policy) after a debtor has officially gone out of business. In a process similar to motor insurance, a premium is paid to cover a risk for an agreed period of time, up to a given value.

Insurers are, by definition, risk averse and so in today’s rather trying times, they are either pulling cover entirely or severely pruning the level of cover they are granting to policy holders.

But at the end of April, the government stepped into the breach with a scheme called Trade Credit Insurance (TCI), which aims to restore credit insurance to those who have had theirs reduced.

TCI will help businesses with ‘whole turnover’ insurance - where the whole of a company’s order book is insured - by offering a separate policy that sits on top of an existing credit insurance policy. The policy, backed by the government, will last for six months and will cover the lower of either the cover you held previously, an equal amount of the cover now offered by your insurer or £1 million. The minimum cover available is £20,000.

TCI cover is dynamic, in that it evolves in line with any changes made to the underlying policy from your present insurer. If your cover increases, you will need to pay a new premium to get the new level; if it decreases, you will get a refund.

It is available, in theory, to any business trading in the UK irrespective of size and business sector, but there are eligibility criteria to be met.

Each policy can be bought if your existing cover has been reduced between April 1 and December 31. You cannot buy cover if no policy exists or if the policy has been withdrawn entirely by your credit insurer.

Other terms state that TCI will also expire if your original insurance expires, it covers only trade within the UK, and it will only run for six months from whenever your original cover was reduced - so renewing your original policy will not extend TCI beyond six months. You can change insurers for your underlying policy but again, cover will not run beyond six months and you need to ensure that any company you insure with is part of the government’s TCI scheme, or your cover will terminate.

As with any insurance product, the cost of cover depends on numerous considerations, including risk. Under a standard credit insurance policy, you could expect to pay between 0.1 and one per cent of the cover required, but 0.7 per cent is the average. TCI is more expensive and the insurance is available from any of the three main credit insurers, who will pay the two per cent you are charged for cover directly to the government. However, there will also be an administration fee (Euler Hermes charges £60) plus an insurance premium tax of five per cent of the overall amount.

Examples will best illustrate how TCI works. If your original credit insurance cover of £200,000 is reduced to £150,000, you will be able to buy a policy to make up the missing £50,000. If the reduced cover drops to £100,000, you will still be able to buy cover for a further £50,000 - £100,000 of TCI cover in total.

However, if your cover drops to, say, £75,000, your TCI cover will drop to £75,000 and you will get a refund. And if cover is withdrawn entirely, the policy will expire and you will get a refund.

Credit insurers issuing TCI:

http://www.atradius.co.uk/

http://www.cofaceuk.com/

http://www.eulerhermes.co.uk/en/