When an agency raises an invoice they want to ensure that this is paid by the client and they may follow a number of processes to reduce the risk of non-payment.

This may include reduced payment terms, credit checking the client or taking out debtor protection.

The debtor protection however comes in two forms, either Bad Debt Protection or Credit Insurance.

Bad Debt Protection is often provided by invoice finance companies and Pay-And-Bill providers and covers the debts should the client go bust (as long as they have a sufficient credit limit).  If the client goes bust then the agency will be covered to the value of the credit limit.  However, if the client refuses to pay within the terms then this is not covered under the policy.

Credit Insurance however will cover the agency not only if the client goes bust but also if the client can’t pay or won’t pay the invoice.  This protracted default may be due to contractual issues, payment disputes or just refusing to make payment.  Again, this only covered up to the value of the credit limit.  These kinds of policies are normally provided by credit insurance companies directly or via a credit insurance broker.

In our experience, it is normally a good idea to take out the bad debt protection provided by the invoice finance company until the turnover levels exceed £4m.  After £4m it is worthwhile looking at the cost savings and protection offered by having a separate credit insurance policy.

Please note, if you are making placement into the public sector then you do not require bad debt protection or credit insurance on these debtors as they are government-backed.

Workwell Outsourcing helps its recruitment agency clients with their credit protection requirements and manages the schemes to ensure that they have sufficient credit protection against their debtors at all times.

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At TBOS, we provide effective support for recruitment agencies, including outsourced back-office administration, and recruitment finance. Please get in touch to find out more.