Credit insurance: what does it cost?
Insurers have different ways of insuring receivables. Policy holders can often choose smaller or larger risk sharing options. Policies that are currently offered can cover domestic sales as well as world-wide sales, depending on the wishes of the customer. Customers can often choose between insuring a single transaction or all their sales. All these factors influence the premium rate widely. Insurers offer a free quote without any obligation, either on-line or from dedicated sales staff.

Credit insurance policies
Credit insurance policies are drafted to suit your needs. This makes them unique for each customer. A credit insurer will always investigate your particular circumstances and wishes. The result is a custom made policy at a price that you can afford.

Credit insurance: how do I get a policy?
All credit insurers offer information on their products through their websites. Often policy wording or non-binding quotes can also be obtained on-line. Custom made quotes and policies can be obtained either on-line or directly from the insurer.

Liquidity: how can I ensure my company’s liquidity?
Outstanding receivables are usually the largest or second largest item on a trading company’s balance sheet. Bad debt losses can affect liquidity and profits. Even worse, they can spell a company’s mean financial ruin. Late payments or non-payments therefore pose a considerable threat to the future liquidity of that company if no measures are taken. By insuring these receivables against non-payment or late payment, the company ensures its cash flow.

What happens if your customers don’t pay?
There can be several reasons why a customer does not pay. You can insure yourself against the fact that your customer is declared bankrupt or has agreed a bankruptcy protection arrangement. This type of insurance is called credit insurance (see credit insurance: what is insured?). Your customer can just be slow in paying. Efficient collection can help out in this case (see Collection: how does it work?). In some cases your customer has paid, but it is not possible for the money to reach your bank. Or your customer has never received the goods you have sent, and does not pay for that reason. You can insure yourself against this risk. (see political risk: what is that?).

Credit Insurance: Types of Cover

Domestic Cover
A domestic credit insurance policy addresses the payment risks that are involved if your buyer is in the same country as you are. Because the policy only addresses domestic risks, the premium rate is usually low, and the policy contract is relatively simple.

Exceptional Loss Cover
Companies that are generally not worried about not getting paid may have a few large buyers that can cause concern in case they cannot or will not pay. Some credit insurance policies cover only these exceptional losses, without including every receivable the company has.

Insolvency Cover
Normal payment ceases when a buyer is declared bankrupt, when a receiver is appointed, or when a bankruptcy protection period is announced. These and similar occurrences are regarded as "insolvency". Credit insurance covers against the risk of not getting paid following insolvency.

Multinationals: Policies designed for Multinationals
Multinationals want to benefit from their buying power. They look for seamless cover across borders, but with local service in local currency and local language. At the same time group exposures should be constantly monitored. Multinational credit insurance programmes are offered by many credit insurers and provide just that.

Selected Risk Cover
Companies that are concerned about only a few of their buyers often opt for a credit insurance policy that covers only those buyers.

Single Transaction Cover
Covers the risk of non-payment for a single delivery. Usually applied to large or complex contracts.

SMEs: Policies designed for SMEs
Many credit insurers offer aimed at small and medium sized enterprises, which contain simple language, are competitively priced, and have low admin credit insurance policies. Often these policies are available on-line, directly from the insurer.

Whole Turnover Policies
A credit insurance policy that includes all buyers and insures against non-payment. Because of the spread of risk, premium rates are usually competitive. The entire buyer portfolio is constantly being monitored, and suppliers are advised about the state of every buyer.

Political Risk
This is the risk that a buyer cannot pay or that goods cannot be delivered due to circumstances outside of your or your buyer’s control. These circumstances usually include war, terrorism, riots, and actions by (local) governments that affect the outcome of the transaction. Some policies also include natural disasters. Their may be a risk that money cannot be transferred from one country to another due to measures taken in the country where your buyer is based. This is also considered a political risk. Failure to pay by a public buyer is always considered a political risk. Changes in a foreign government's policy may lead to cancellation of your contract. Political risk cover insures against this risk.

Financing Tools
Many companies use credit insurance as a tool to facilitate their financing. The most common examples are:

Bank Secured Financing
Companies that have their business financed by a bank, can assign their credit insurance policiy to their bank as a security to the bank.

An underwriter's accumulated risks of insured credit risks can be minimised through reinsurance. This can be done through either prportional, facultative and/or non-proportional contract. Newly established or emerging credit/bond insurers will require reinsurance agreements, as well as feasibility studies, staff training and technical assistance in risk underwriting and claims handling.

ART: Alternative Risk Transfer
By using the receivables on a balance sheet, ART explores alternatives for financing a company, for example through securitisation.

Risk Mitigation
Supplying goods or services to domestic buyers or to buyers in other countries brings with it a variety of risks. There are various manners in which these risks can be minimised or eliminated:

Bankruptcy Cover
The most common reason for not getting paid is that a buyer goes bankrupt before payment is due. Through a credit insurance policy a company can assure payment, either from their buyer or from their insurer.

Civil Unrest Cover
Payment from a buyer can be obstructed as a result of strikes, protests, and other civil unrest. A credit insurance policy covering political risks avoids not getting paid as a result of these occurrences.

Export Credit Insurance
There are many additional risks if payment is due from a buyer in another country. Not only is it more difficult to determine the buyer's current status, many instances may occur that prevent payment taking place, either caused by that buyer or competely outside his influence. An export credit insurance policy addresses all these risks.

Nationalisation Cover
A change in government in the country of the buyer, may lead to a change in politics. In case the buyer is nationalised, his payment obligation may be subsequently cancelled. Payment can be assured through political risk cover.

Political Risk Cover
Covers against the risk of not getting paid as a result of war, civil unrest or government measures. Can also include cover against natural disasters, terrorism, and similar circumstances.

Protracted Default Cover
Policies that include this cover pay out if a buyer is late in paying, and payment is still due after a pre-determined period (usually 60 days after due date of the invoice).

Transfer of Currency Cover
Covers the risk of the inability to transfer money from one country to another, and therefore not getting paid. It normally forms part of political risk cover.

War Cover
War disrupts an entire country and often makes it impossible for buyers to pay their bills. War cover forms part of political risk cover, and insures against this risk.

Credit Management Tools
Suppliers that deliver goods and/or services on credit will have to manage this credit risk to ensure that payment is received on time. Several tools come to the aid of today's credit manager. These can be used as additional security to existing credit management procedures. If no procedures are in place, these tools can assist in setting these up.

Buyer Information
One of the most important credit management tools is reliable up to date buyer information. A supplier only sees one side of his buyer. Independent information is essential for efficient credit management.

Country Reports
A buyer may be sound, but the country he is in may be experiencing severe problems. Country reports detect trends and alert exporters before serious problems arise in a particular country.

Credit Management
Suppliers need to manage their outstanding receivables. This can be done through complex financial solutions. Alternatively companies can insure against bad debts, obtain detailed market intelligence, implement ledger management, factor, or seek professional help in recovering debts. 

Debt Collection
Pro-active debt collection procedure has a high success rate. A buyer may be in difficulty, but the supplier can still control payments, provided professional debt collection procedures are in place.

Factoring
By transferring receivables, this financial technique makes it possible for companies to fund all or some of their invoices and thus cover their operating capital requirements; obtain cover against their customers' insolvency; obtain payment of receivables with shorter payment terms; obtain information on their customers' financial soundness; outsource or vary their administrative expenses; and optimise current assets and liabilities.