Whole turnover policy

What Is a Whole Turnover Policy?

A Whole turnover policy is a type of insurance coverage that companies use in the realm of financial factoring. This policy covers a company’s entire invoice book, meaning every transaction made with customers. The main goal of a whole turnover policy is to protect your business from bad debt losses. This could happen if a customer can't pay or goes bankrupt.

Understanding Financial Factoring

Before diving deeper into the whole turnover policy, let's clarify what financial factoring is. Financial factoring involves a business selling its invoices to a third party. This third party, known as a factor, buys the invoices at a discounted rate and provides the business with immediate cash. This process helps improve the business's cash flow.

Benefits of a Whole Turnover Policy

Adopting a whole turnover policy can offer peace of mind. If a customer fails to pay their invoice, the policy can pay out a percentage of the outstanding amount. This means businesses can recover a large part of their losses. Such a policy also allows companies to manage credit risks across all their customers effectively.

How Does It Work?

In practice, a business with a whole turnover policy would pay a premium to the insurer. This is usually a percentage of their annual turnover. The insurer then reviews the business’s customers for creditworthiness and sets a limit on how much risk they'll cover for each one. If a customer defaults on a payment, the business can make a claim under their whole turnover policy.

Choosing the Right Policy

Selecting the proper whole turnover policy requires evaluating your customer base and turnover. Consider the reliability of your customers and the stability of your cash flow. An insurer can help you make an informed decision, matching a policy to your business's needs.

Conclusion

A whole turnover policy is an essential tool in financial factoring. It strengthens a company’s financial position by insuring against customer payment defaults. It is worth considering for any business looking to safeguard its cash flow and reduce the risk of bad debts.