Credit Insurance: All you need to know about this service
Everything you need to know about credit insurance
For most business owners trading with customers, the financial soundness of their company hangs in the balance every time a payment is delayed. In the event of a customer becoming insolvent, the threat is even more significant. These concerns encourage company leaders to consider financial protection a top priority. This is where credit insurance comes in. By transferring risk away from policy holders and onto the insurers, these contracts protect them against the consequences of payment failure on the part of their customers. Let’s delve deeper into what these contracts are and why these services can be invaluable for your business.
What is credit insurance?
Also known as “trade credit insurance”, bad debt protection, or export credit insurance, credit insurance protects businesses against losses that could arise from their clients’ defaulting on their payments. Instead of being directly impacted by unpaid and overdue invoices and potentially facing turnover issues or even bankruptcy, the insured party gets partially or entirely compensated for the incurred loss by the insurers. Companies can make claims whether they operate on the English market or selling products on a global scale (export).
These contracts provide an effective means of protecting your turnover and maintaining your cash flow, granting you the confidence to grow your business and to extend credit to new English or global customers.
To help manage your credit decisions on recurrent transactions, we provide finance recommendations in the form of a convenient tool: @Credit Opinion. Click to find out how this service can complement your credit insurance policy.
How does credit insurance work?
There is a credit insurance contract available for any situation, and all types of companies. When you set up your policy, you are asked to provide information on your own business and recent loss history, as well as on your buyers, so that their financial health can be assessed. This will allow your insurers to establish the invoicing period and credit limit you should extend to each buyer.
The aim of credit insurance is not to cover you against your customers’ payment failures come what may. The idea is to help you determine the soundest way to conduct your business and to support you should those precautions prove insufficient. Your insurers will continue to monitor the situation during the course of the policy and adjust your solution based on new developments.
A simple contact request is the only step you need to take when a customer doesn’t pay on time. The service includes debt collection, which significantly reduces loss of profit on account of non-payment.
Depending on insurance policies, your contract could cover you for a single risk, or against multiple issues, including bad debt, late payment, pre-shipment risks, natural disaster, political risk, etc.
What are the benefits of credit insurance
Trade credit insurance policies provide several key benefits for policy holders.
- Increased sales for better growth;
With the support of your insurance policy and the tools provided by Icon by Coface, you can identify new customers that you can trust beyond your normal credit risk comfort. This can help you explore new markets to trade all while growing your sales with your existing clients.
Thanks to the added level of security, you will also be able to offer more competitive payment terms and to feel confident with higher credit exposures, thus attracting new customers.
- Reduced bad debt provision and safer bottom lines;
Bad debt is a significant liability for business owners, which a trade credit insurance can mitigate to the point that “emergency cash” is no longer mandatory. Instead of having to keep liquidity aside, companies can rely on their policies to cover them and allocate the extra cash flow to more strategic initiatives that can boost their business.
- Improved cash flow;
Outstanding invoices are a key driver of insolvency. Late payments and non-payment can cause significant turnover and cash flow issues, which sometimes end up being fatal for businesses. By reducing how long a sale remains outstanding and proceeding with the debt collection in a timely manner, your insurer helps you consolidate your own finances.
- Lowered credit management costs;
The longer it takes to make business decisions, the more profitability suffers. Chasing bad debt prevents you from focusing on what you do best, which is growing your business and moving forward with your partnerships. Icon by Coface supports your growth by providing you with the right information at the right time, through smarter credit checks.
- Better banking terms;
Holding a credit insurance policy will help you gain the trust of banking establishments who, in turn, will approve reduced financing fees or larger lines for the receivables covered by your contract. Knowing that your sales are insured will make them bankers more confident about granting you capital and giving you access to trade finance.
If you are trading with customers under open credit terms, then credit insurance could bring you all the support you need to expand confidently, all while protecting your most valuable assets: trade debtors.
Contact us now to find out about our trade credit insurance services and start building better relationships with your customers around the globe.
Tel.: +359 2 821 37 71
Head of Marketing & Communications
Tel.: +359 882 481 411
76A, James Bourchier Blvd.,
Business center Hill Tower