Credit insurance is an instrument in debtor management. It protects your company from the insolvency of one or several of your customer(s) and additionally reduces your risk through continuous surveillance of your customers.
An overview of the primary functions of a credit insurer:
- Damage prevention
by timely notification before there is any loss of receivables (early warning system)
- Damage reduction
by bundling the interests of several insured parties
- Damage compensation
should a loss or an event of damage arise
A credit insurance will support you in assessing your customers’ creditworthiness. It examines a company’s economic situation and performs a broad analysis of its financial situation. The most diverse information is collected in this respect: Reports from credit agencies, the Federal Gazette, balance sheets and corporate figures, reports from policyholders and much more. A credit insurance puts you in the position of objectively and professionally assessing your business partners from the start – which is of utmost importance already for negotiating your terms and conditions.
If a customer is in arrears or if payment default is impending, the credit insurance is activated and, if necessary, supports you with debt collection. And should that be unsuccessful, the credit insurance will not leave you alone with your losses on receivables: It covers both, goods and services that have already been invoiced, and services or performances already rendered but not yet invoiced. Optionally, it also includes the protection of advance services and additional purchases (production risk), risks of market price differences, as well as insurance protection against repayment claims by your (former) business partner’s insolvency administrator.
When talking with banks, the importance of credit insurance is highlighted from yet another angle. A bank’s rating of a company’s debtor management is decisive for the terms and conditions granted. Moreover, the reservation of ownership agreed upon with your customers is upgraded significantly by a credit insurance. That means the more thoroughly a company already evaluates its customers, the more obliging banks can be.