Securing your receivables
A policy from a private credit insurer
The risks are there for everyone to see: customers owe more than 300 billion euros to their suppliers, more than the banks have lent as short-term credit to their clients. Supplier credit has meanwhile become the most frequently used way of financing business in the German economy – especially for small and medium-sized companies. The downside is that 32,687 companies throughout the country had to file for insolvency in 2009.
Bad debts can often be a life-or-death matter, especially for small businesses. The following example shows how true this is: if you have a profit on sales of 2%, you need to generate 1.25 million euros in extra sales in order to compensate for a loss of 25,000 euros. These dangers are reflected in the high rate of knock-on insolvencies affecting other firms. And on top of that, payment behaviour is getting worse, as shown by a poll carried out by Euler Hermes which revealed that companies often have inadequate internal debtor and creditor management.
That’s a good enough reason to protect yourself against these risks.
But however perfect your management, there is no absolute guarantee of security, as the large number of companies who went bankrupt through no fault of their own shows. All the more surprising that most companies take out fire or transport insurance without thinking twice, but only 12% have credit insurance against bad debts. After all, credit insurance doesn’t only pay your claim when you have a loss; its primary goal is to help prevent losses in the first place by means of expert assessment of a customer’s creditworthiness.
Credit insurers have many sources of information for this – both domestic and international. Euler Hermes, for instance, can draw on a globally networked risk database with information on more than 40 million companies. And all this is complemented by the expert know-how of our specialists about sectors and companies in practically every region worldwide.
That means that a credit insurance policy protects you in three different ways. It can:
- Prevent losses: the insurer checks on the buyer’s creditworthiness even before you sign the contract, continues to monitor it and warns you in good time if there is any sign of deterioration.
- Mitigate losses: experts help to collect delinquent debts with a professional collection service and dunning procedures.
- Indemnify losses: if it is too late to collect the debt, an insured event is declared, leading to a claim.
In principle, all your receivables arising out the delivery of goods and the provision of services are insured. The manufacturing risks involved in sales of plant and machinery can also be insured. Besides charging reasonable premiums with an individually tailored self-retention for the insured, Euler Hermes offers a range of services designed to help in everyday business practice:
- Comprehensive protection for your receivables all over the world – with the exception of only a few politically unstable countries.
- Creditworthiness checks by our Risk Management Division.
- Fast credit limits via our Online Service.
- Early indemnification of losses even when no classical insured event has occurred.
- One-stop shopping for collection of your outstandings, also after you have been indemnified, and settlement of debts.
Taking out credit insurance is something which any company with a turnover of EUR 500,000 or above should consider. The advantages for companies are obvious: a calculable premium replaces an incalculable bad debt risk.
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Euler Hermes Group
