Credit insurance for businesses: the complete guide

In Europe, unpaid debts are the cause of the failure of one in four activities. Also, companies are always looking for the right solution to limit the consequences of unpaid debts. Among the possible solutions, we can cite credit insurance. Popular with businesses to protect themselves against the risks of non-payment, this coverage offers other interesting advantages. Here’s everything you need to know about credit insurance for businesses.

What is credit insurance for businesses?

Credit insurance is defined as coverage to protect a business against losses generated by non-payment of invoices. In other words, it provides a guarantee on commercial debts against the risks of payment default on the part of customers. In fact, this coverage allows the company subject to non-payment of receive compensatory compensation from the insurer.

There are several possible reasons for unpaid invoices. Sometimes, some corporate clients always seek to delay payment of invoices further. Also, it happens that they are not yet settled after theexpiration of time authorized, specified in the general conditions of sale. In some cases, customers simply refuse to pay the amounts owed or honor their part of the contract.

The insolvency of a client company can also lead to unpaid debts: in all cases, we invite you to go to insurance-credit-entreprise.fr to compare all insurers’ offers. This will make it easier for you to easily find the insurance company that can cover you in the event of non-payment of your commercial debts. Also note that insurers can cover up to 95% of your debt.

business credit insurance

How the unpaid debt guarantee works

How the unpaid debt guarantee works is quite simple. First, insurers monitor the financial performance and general health of client companies. They apply a risk rating. There grade awarded corresponds to the probability that the customer will be unable to pay their invoices.

Depending on the results of these assessments, each debtor will receive a specific credit limit. The latter is defined as being the maximum amount that the credit insurers agree to cover. However, the company is required to respect the conditions of the insurance policy, by decision amendment or in compliance with the limit of the non-named. Once this limit is exceeded, the company will no longer benefit from coverage.

Then, the insurer covers the bill collection of the company in the case of unpaid debts. It ensures by various amicable or legal methods that unpaid debts are settled by the client companies concerned.

If the steps taken do not result in a payment from the debtor, the credit insurance company compensates the company according to the conditions established in the insurance contract. Generally, compensation is received within 5 months, from the date of date of submission of the file at the level of the litigation department. This compensation period may vary depending on the context of the case.

The advantages of credit insurance for a company

Taking out credit insurance is advantageous for businesses. In fact, it ensures the recovery of a significant part of the unpaid debts of the company. With this in mind, the company concerned must negotiate coverage rates for unpaid debts in order to obtain a compensatory allowance which covers at least the purchasing and distribution costs. This will enable the company to ensure operational continuity. In addition, by delegating invoice collection to professionals, you will have a greater chance of obtaining the full payments. Your internal teams will also have more time to devote to other business development activities.

Then, credit insurance allows the company to better manage credit risks. It gives him the possibility of anticipating them. In addition, the company limits its potential losses due to the fact that it shares the risks incurred with the insurer. The clauses and deductibles of this type of insurance make it possible to spread these risks.

Insurance companies also provide business-relevant business information. This data helps significantly reduce the risk of non-payment. They are also important in the follow-up of customer position and make it possible to exclude doubtful customers likely to dispute payments. The company can also rely on this information when making decisions regarding invoice payment deadlines.

On the other hand, this type of coverage facilitates access to financing, in this case invoices andfactoring. This insurance also reassures financial partners and banking institutions thanks to the delegation of benefits. Also, the company can easily benefit from additional financing from them. This allows it to increase its financial capacity.

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business debt recovery

Credit insurance guarantees

Credit insurance includes numerous guarantees. Basic coverage concerns commercial risk in France and exports. However, it is possible to take out other types of guarantees. These can be classified into three distinct categories depending on the nature of the risks covered:

  • the first category includes dangers arising from commercial risks. This concerns the risks of insolvency of the debtor or failure to pay. In the event that the deficiency results from a dispute of the debt on the part of the customer, the compensation will only be received after the problem has been resolved,
  • the second category corresponds to political risks, including the risks of political instability in the purchasing country and the risks of natural disasters,
  • the last category brings together the monetary risks. It relates to risks linked to concerns about non-convertible currencies and any other situation which could lead to the depreciation of receivables.

It should be noted that credit insurance only covers risks, and not problematic situations that have already occurred. Therefore, if the bankruptcy of the company occurred well before thesales agreement has taken place, the company will not receive compensation.

How much does credit insurance cost?

The cost ofcredit insurance includes four main components:

  • the coverage premium,
  • investigation costs,
  • monitoring costs,
  • any administrative costs in the event of litigation.

There coverage premium is based on insurable turnover in most cases. It represents only a small portion of insured sales and is expressed as a “per thousand” of turnover. Pricing also takes into account other factors, including:

  • the sector of activity of the insured and the client companies,
  • the history of losses on previous irrecoverable debts,
  • the type of clientele,
  • the length of the payment period,
  • the amount of the maximum compensation,
  • the rating of each debtor,
  • the location of the customer,
  • etc.

You should know that the cost of premium coverage may vary during its existence. The insurance company is free to revise the conditions of the contract after a major loss has occurred or at each due date. This operation will be based on police findings. Depending on the situation, the premium will be upward review when the insurer notices that the balance of coverage appears to be compromised. It is also possible that it changes certain parameters of the contract, such as the guaranteed percentage or the establishment of deductibles.

Otherwise, the insurer may revise downwards premium rates if the results are favorable. Whatever the revision made to the contract, a dialogue between the two contracting parties must always take place beforehand.

company credit insurance benefits

The criteria for choosing a credit insurance contract

You have decided to subscribe to a credit insurance for your business in the near future? You will face countless offers from insurance companies specializing in this area. Here are criteria to take into account to define the credit insurance contract adapted to the your company profile.

However, before looking at criteria external to the company, we recommend that you clearly determine the intrinsic factors. This concerns the turnover, the duration of the contract imposed by the insurer as well as the type of credit insurance contract.

Then, there is a possibility of customer coverage “ not named » and customer coverage « named “. The first option relates to a customer whose coverage is taken over automatically without a request for coverage having taken place. This type of solution is conditioned by two parameters: the outstanding threshold and the fixed coverage threshold. The second option requires a process consisting of questioning the insurer about its customers before making a request for coverage for a specific amount. It is also important to take the disbursement limit into account when choosing your credit insurance. This criterion conditions the maximum amount disbursement of compensation provided for in the contract.

The selection of the best credit insurance must take into account the deadlines granted by the insurer. Whether it is the compensation period, declaration of turnover or company management recovery, it is always important to find out about these deadlines. The same applies to disputes relating to customer monitoring, dispute management, claims reporting or even requests for coverage.

Businesses: what should you remember about this type of offer?

L’credit insurance is of great importance to businesses. It offers them protection against possible unpaid debts. It is also an excellent solution for easily accessing financing. However, it is important to select carefully credit insurance for your business so that you can profit from it effectively. To do this, you should carefully check the conditions and find out about the different terms defined in the contract.