Assurance Crédit Credit Insurance
Credit Insurance: Why? For Whom?
As a tool to cover the risk of non-payment by customers to whom a company grants a payment extension, credit insurance has several roles to play. Find out more in this article.
Credit insurance is often defined as a tool to cover the risk of non-payment by clients to whom a company grants a payment extension. In view of the importance and consequences of non-payment and late payment on companies’ cash flow, credit insurance appears to be an ideal tool for managing this uncertainty. Numbers are there to prove it: in 2019, the amount of credit insurance premiums reached €7billion (Sources: ISACA).
However, credit insurers are repeatedly accused of not supporting companies sufficiently, of withdrawing their cover in difficult times (particularly during the Covid-19 crisis) or of not covering the risk when it becomes concrete!
So why do so many companies resort to such a criticised tool? Chateaudun Crédit provides you with some answers.
A tool for information and prevention
Credit insurance should above all be used as an information means to support your company’s credit management practices. What payment term can I give to my clients? What level of receivables will this represent over time?
The guarantees granted by a credit insurer represent a key indicator of the financial solidity of your clients. In addition to the public information that can be obtained from commercial information providers (Dun & Bradstreet, Altares, etc.), the credit insurer has access to more detailed and confidential information, such as the payment behaviour of your clients with their other suppliers.
An outstanding collection strength
Taking out a credit insurance equally gives you access to an efficient collection service. The weight of credit insurers is such that a client will often be more inclined to pay his/her unpaid invoices to avoid his/her supplier calling in a credit insurance. In fact, there is a real risk that a company with late payments will lose all of its supplier payment terms if an insurer initiates a collection action! The impact on cash flow (and therefore on the business in general) is often disastrous.
Furthermore, the regional network of credit insurers is very dense (France and exports included), which increases the effectiveness of collections. This is a significant advantage if your company has a strong export presence (or wishes to develop its export business), where the dunning and collection management is more complex than on your domestic market.
A support for financing your receivables
Covering the risk of non-payment, information, prevention and collection are essential services for the good control of your client risk. In addition to improving your company’s credit management policy, credit insurance becomes essential when it comes to financing your receivables. When a factoring agreement is implemented, the client risk becomes the major issue in any financing study by a factor, which will try to limit it as much as possible. When a credit insurance policy is already in place, this reflects an awareness and control of the accounts receivables, which will be appreciated by the factor during its audit.
To go further
There are plenty of agreements adapted to the specificities of each industry. It is therefore advisable to carry out a detailed study of your activity and your receivables before taking out a credit insurance policy. Which credit insurer should I choose? What will be my main selection criteria? How much does such insurance cost?
Chateaudun Crédit, as a specialising credit insurance broker, provides you with a team dedicated to the study, implementation and daily support of your insurance policies.
To know more, do not hesitate to contact us using our contact form or check this page to discover our approach.