What is trade credit insurance?
Trade credit insurance protects your business against both commercial and political risks that are beyond your control. It improves the quality of your bottom line and helps you to grow profitably, minimizing the risk of sudden or unexpected customer insolvency. Credit insurance gives you the confidence to extend credit to new customers and improve access to funding, often at more competitive rates. Trade credit insurance is for short-term account receivables – i.e. those due within 12 months.
How does credit insurance work?
Credit insurance protects your company against the failure of your customer to pay their trade credit debts owed to you. These debts that can arise as a result of that customer becoming insolvent or failing to pay within agreed terms and conditions (i.e. ‘protracted default’).
How it works is simple: Euler Hermes’ network of risk offices monitors the financial performance and well-being of your customers. We allocate each of those customers a ‘grade’ that reflects the health of their activity and the way they conduct business.
Based on this risk assessment, each of your ‘buyers’ is then granted a specific credit limit up to which you, the insured, can trade and be able to claim should something go wrong. This limit can be revised upward or downward as new information becomes available.
Throughout the lifetime of the policy, we inform you of any changes that might impact the financial health of your buyers and their ability to pay you for goods or services you have delivered. In the event that your buyer cannot or will not pay you, you will be insured and indemnified up to the limit of your policy. We can also manage collection of the debt for you if/should the need arise.
Why should you subscribe to B2B credit insurance?
Trade receivables are one of the main assets on a company’s balance sheet. With credit insurance, you can protect both your current and future cash flow as well as your profits, and free up resources to concentrate on more ‘value added’ activities including new business.
Fundamentally, credit insurance improves the quality of a company’s bottom line through:
- Comprehensive protection against the risk of insolvency
- Enhanced customer relationships
- Improved banking relationships and access to finance
- Greater confidence in pursuing commercial opportunities
It also provides excellent insight into customer’s company risk through ‘best in class’ credit information.
> 4 reasons to use credit insurance
Credit insurance example
If your company’s profit margin is 5% and one of your buyers defaults on a debt of $100,000, then you will have to produce additional sales to the value of $2,000,000 to make up for lost profits.
Non-payments weaken your company and lower its investment capacity. A credit insurance policy helps manage your account receivables and mitigate your losses in the event of non-payment.
We tailor our credit insurance solutions to your company’s size, sector and business needs. Discover more about our credit insurance solutions
for small-medium entreprises, large-sized business and multinationals.