What is trade credit insurance?
Trade credit insurance, also called accounts receivable insurance, provides your business with protection against the failure of your customer to pay its trade debts. This can arise because your customer becomes insolvent or because your customer does not pay within the set timeframe. These risks are usually described as commercial risks. Companies that export can also protect themselves against a range of political risks that may prevent or delay payment. This arises when payment is not received as a direct result of a war in the buyer's country, cancellation of a contract by the government of the buyer's country, or when a government implements regulations which either prevent the export or import of the goods – or prevent or restrict the transfer of hard currency – from the buyer's country.
Who uses trade credit insurance?
Any business selling on open account terms to other businesses can benefit from trade credit insurance. Euler Hermes’ customers range in size from small businesses to large, multi-national companies. Firms in most sectors of the economy – including business services as well as those trading in goods – use trade credit insurance.
What credit terms can be protected?
Business credit insurance is generally for short-term trade accounts receivable, those due in less than one year.
Are there any sales minimums?
From a practical standpoint, you generally need annual sales of at least $1,000,000 to make the program cost-effective.
Why should I consider trade credit insurance?
On average, 40% of a company's assets are in the form of trade debts. Sometimes the figure is far higher. It is very difficult for a company to predict which client will default on payment. Close to 50 percent of all payment defaults arise from vendors with whom stable and long-term trade relationships have been established.
The cost to a business of non-payment can be considerable. For example, if a company's profit margin is 5 percent and one of its customer defaults on a debt of $100,000, the company will have to achieve additional sales of $2,000,000 to make up for the lost profits. More importantly, the lost cash flow could be devastating. Non-payment weakens your company and lowers its investment capacity. A trade credit insurance policy helps in the management of your accounts receivables and compensates you in the event of non-payment.
What are the benefits of trade credit insurance?
There are many benefits including:
- Better credit control and protection against catastrophic bad-debt losses.
- Better risk management through an early warning system bolstered by the Euler Hermes database.
- Better business planning through the elimination of unknown risks.
- Improved working capital from your lender because you have enhanced the quality of your accounts receivable with trade credit insurance.
- Better sales targeting, thanks to Euler Hermes’ proprietary information that can be used to target new customers and markets and monitor existing customers.
- The benefit of Euler Hermes’ debt collection capabilities and network.
- Improved cash flow, because you receive payment for unpaid invoices that are insured.
More on trade credit insurance with Euler Hermes
Can I just cover the accounts that I am worried about?
No insurance program can work over the long-term if only questionable buyers are covered. But more specifically, no one can accurately predict when a company may fail. Euler Hermes underwrites on a whole turnover basis. This provides the biggest value to its clients and supports a long-term relationship.
What is the level of indemnity?
The level of indemnity typically ranges from 80%-100%; however, the level varies depending on the policy you select, your credit management experience, your accounts receivable portfolio, and your premium target.
If I incur a loss, how soon will a claim be paid?
Generally, the claim will be paid within 60 days on a domestic loss. Export losses may take a bit longer because of country waiting periods. However, if the export loss is an insolvency, it will be paid within 60 days of the date of loss.
Are any services available online?
Yes. With EOLIS, Euler Hermes’ online policy management system, you can make credit requests, file a claim, and monitor your claims any time you want via the internet.
How much does trade credit insurance cost?
For the majority of our customers, the premium is calculated on a percentage of your sales. This rate is generally less than 1%, depending on the trading history and historical debt loss of your company, your trade sector and your customer base. When political risk coverage is included, the premium may be higher. The majority of businesses will find trade credit insurance to be highly cost-effective, even before taking into account the many additional benefits in the areas of sales.
What happens if you can't collect?
If we exhaust our pre-legal efforts and you wish to end collection activity there, we can close the case. However, we can also advise you on the effectiveness of legal action in the circumstances of your case and the next steps to try to recover your money.
How much experience do you have in Business-to-Business (B2B) collection?
We are B2B specialists, and through our many years of experience, know the most effective way to collect late B2B payments and how to do it with extraordinary care and sensitivity.
How many office locations do you have and where are they based?
In the United States, Euler Hermes has an on-the-ground presence in all 50 states via our network of experienced sales agents. We are also located in over 50 countries and our strong partnership with external lawyers and collection agents allows us to provide our collection service in over 130 countries worldwide.
How many collectors are spread among your offices?
We have over 600 commercial debt collections professionals worldwide, who have the expertise and knowledge to recover your money. They understand how to be genuine ambassadors for your organization while remaining totally focused on collecting what you are legitimately owed.
What methods do you use to collect?
We use the power of our name to collect through telephone and letter collection and, if required, we can provide a seamless collection to legal service from judgment to enforcement action.
What's the average time it takes to collect the debt?
Each case is unique and typical debtor behavior varies, but in all cases we immediately attempt to come to an agreement with your debtor. Our aim is to collect cases pre-legally and our experienced collection staff can guide you through that process wherever your debtor may be.