Here you can find answers to key questions when considering the use of credit insurance. Each situation being specific, do not hesitate to contact us directly for further discuss your needs.
How much does credit insurance cost ?The cost of credit insurance is composed of 3 parts: the rates, fees and investigative and recovery costs monitoring.
The rate is a percentage of revenues to insure. This percentage can vary between 0.1 % and 1 % of turnover according to different criteria :
First, the most important business.
◾ total turnover
◾ historic of the evolution of turnover
◾ distribution of the turnover
◾ analyses balance sheets banking
◾ geographical zones for export customers
◾ quality of the customers
◾ numberof the customers
◾ claims historic
◾ outstanding debt average
◾ payment periods and deadlines
How is the premium calculated ?Trade credit insurance is priced on a whole turnover basis. Obviously, the future turnover is not known at inception and so the premium on the credit insurance policy is not known either. Therefore, a minimum premium amount is usually an integral part of the contract.
What is credit insurance different from letter of credit ?With a letter of credit a bank guarantee that the payment of a buyer’s obligation will be received on time and in the correct amount.
But it is expensive and lengthy claims process.
A trade credit insurance protects a seller against losses from nonpayment of a commercial trade deb.
It is a guarantee for a protection against non-payment or slow payment.
It’s less expensive than a letter of credit.
In addition, it expands a company’s financing options by increasing its borrowing base with secure receivables.
How much does credit insurance cover ?The cover defines a percentage of the unpaid compensation. This cover, also called coverage vary between 75% and 90 %. It is important to have the best coverage of its customers.
Do I have to insure all of my customers ?Yes. To prevent anti-selection risk (failure to present only the bad customers ), credit insurers take as a basis, the overall turnover of the company.
What is the value of credit insurance if I have never had an unpaidThe future will not necessarily reflect the past. Furthermore, no claims will allow you to negotiate competitive pricing . Either way, make sure your receivables will allow you to develop your sales securely , reduce your accounting provisions for bad debts , or to (re) negotiate your bank lines .
Am I covered until 100% ?In principle, insurers prefer that the insured remains involved in the risk. The compensation rates are generally in the range of 85-95 %. However, in case of recovery before compensation, you receive 100% of the amounts recovered.
Am I compensated without delay ?To allow the insurer to intervene with the debtor, the contracts provide for a delay of several months before compensation .
What is the maximum liability amount ?The maximum liability amount or Policy limit or Aggregate limit is used to limit the maximum loss that can be sustained through one single contract during a policy period. If in one year, the total loss of a policy occurring exceeds the amount of the agreed maximum liability, the actual loss for this policy will be limited to this amount. This amount is always set as a multiple of the earned premiums in a given policy contract (between 20 to 40 times, on average 25 times).