All your questions about credit insurance answered
1. What is credit insurance?
When exporting, you always run the risk that a customer cannot or will not pay their invoice for whatever reason. With credit insurance, that risk is covered and you avoid the financial strain of unpaid invoices. You can cover transactions for a country, for a company or for your entire portfolio, for both political and commercial risks. It is also possible to cover the risk of your customer unilaterally terminating a sales contract (cancellation risk).
2. How does it work?
When you apply for credit insurance, we will proceed as follows. First of all, we check the creditworthiness of your customer (the debtor). Our credit analysts use data they obtain through gathering information and actively monitoring debtors. You can also easily request this type of analysis via our website before submitting your insurance application.
In addition, we also assess the country risk based on a group of indicators such as the country’s debt ratio, the size of its foreign currency reserves, the exchange rate volatility, the economic situation and inflation.
You will then receive a quotation with a premium proposal. Once we have reached an agreement, you are insured for the requested transaction(s).
If at any time you inform us that your customer is unwilling or unable to pay and recovery is no longer possible, Credendo will pay you compensation. You can read more about this in this article.
3. Why take out credit insurance?
Despite your credit management procedures and the insight you have into your customers, you always run the risk that your customers will not pay their invoices. When exporting your goods and services, whether or not to Europe, there are lots things that are completely beyond your control and that can go wrong.
In the area of sales:
- The customer goes bankrupt.
- The contract is cancelled.
- The buyer disappears.
In the area of delivery:
- Delivery is impossible due to war, embargo, transport problems, etc.
- Goods are delivered but not received: rejection of import by customs, non-pickup by the customer of the goods, etc.
In the area of payment:
- The customer refuses to pay.
- The customer disappears.
- The customer is unable to pay (presumed insolvency/bankruptcy/judicial settlement).
- The customer is unable to transfer the money (‘hard currency shortage’).
Credit insurance covers these commercial and political risks, so that you can be sure you will be paid, even if the money cannot be fully recovered.
4. Do I need to take out credit insurance for all my customers?
It is not necessary to take out credit insurance for every customer. You can take out cover for some customers, while for others you can decide to bear the risk yourself in full or up to a certain amount. If you want to insure your entire portfolio, we recommend taking out a comprehensive policy. If you want to take out insurance for one specific customer, we call this single-risk insurance. If you are willing to bear the risk yourself up to a certain amount and only be insured above that threshold, thereby keeping credit management under your own control, you can opt for excess-of-loss cover.
There are many more variants and other types of credit insurance, depending on your product and the payment terms (shorter or longer than 2 years). We therefore recommend that you contact our experts. They will work with you to find the most suitable solution.
5. What are the advantages of credit insurance?
- Credit insurance gives you certainty that you will be paid, either by your customer or by Credendo.
- We help you recover from your customer(s) the money that you are owed.
- The policy is available to businesses regardless of size.
- You get access to information about the creditworthiness of your customers through limit decisions.
- Competitive advantage: your bank can grant financing, whereby the credit insurance policy serves as an additional guarantee.
6. How much does it cost to take out credit insurance?
The premium depends on several factors:
- the creditworthiness of the debtors;
- the countries to which exports are made;
- the size of the amount to be insured;
- the payment period: long-term risks are more difficult to assess than short-term ones; and
- whether or not you wish to cover additional risks such as breach of contract.
7. Is credit insurance needed for export within Europe?
Looking at the interactive world map on our website, you might think, based on the short-term political risk, that taking out credit insurance is not really necessary. After all, most countries are green or, at worst, orange. Even though this picture changes when we look at the medium term, there are still no countries that are dark red. However, we get a very different picture if we look at the risk of business climate within Europe. Due to the current pandemic, most countries are dark red, indicating an increased risk that the buyers of your products will not be able to pay the invoice. Credit insurance is therefore certainly recommended, even for export within Europe and even after the pandemic. After all, you can never be 100% sure that your customer will pay. Knowing a customer for years is no guarantee: circumstances beyond their control may prevent them from paying.
8. Is credit insurance suitable for SMEs?
Yes, it certainly is. Many of our credit insurance products are suitable for both SMEs and large companies. For long-term credit insurance (such as our supplier credit insurance), we have even set up an SME team that can guide you through the export process from start to finish.
9. What happens if my customer does not pay?
If you report an unpaid invoice, our Claims Department will attempt to recover the money. The first step is to listen to both parties in order to assess where the payment problem lies and to find the appropriate solution. As the exporter, you will of course have a say in the entire procedure. If you would like to conduct the initial negotiations with your customer yourself, you can.
If those conversations do not produce the desired results, we move on to the next phase and engage the services of a local lawyer or local collection company.
If that does not bring about the desired result, but there is still a chance that we can recover your loss from your customer, we will try the legal route. If that also fails, we will compensate you for the loss you have suffered.