Credit insurance: what is it?
Do you want to make sure your sent invoices will always be paid? Then taking out credit insurance is a good option. Unfortunately, it can happen to any organization at some point that a major customer suddenly drops out due to bankruptcy. As a result, a customer’s bankruptcy can also indirectly have unpleasant consequences for you. With credit insurance, you do not run any risks when a customer is unable to pay an invoice sent by you for financial reasons. In such a case, the insurer will make sure that you still receive the amount due.
How does credit insurance work?
Do you supply products and/or services to business customers? Then, in most cases, it is possible for you to take out credit insurance. When you take out credit insurance, you pay a premium over your turnover to the insurance company. If a customer goes bankrupt, for instance, and you are still owed money for work completed earlier, the insurance company will ensure that you are paid the amount in question. Therefore, with credit insurance, you are always insured for financial arrears caused by someone else’s non-payment. This way, you ensure that cash flow keeps running, and you do not end up in financially awkward situations. The credit company then takes over the claim and will work to still get the customer’s money.
Who is credit insurance interesting for?
Credit insurance can be interesting for different types of businesses to take out. It is often thought that credit insurance is only for larger companies, but nothing could be further from the truth. There are different types of credit insurance available. Which type of insurance best suits your situation depends, among other things, on the size of the company and the number of invoices. When taking out credit insurance, you can choose from the following types:
- Debtor policy, especially suitable if you have one customer, from whom you receive several larger amounts.
- Transaction policy, especially suitable if you occasionally receive a large amount from a customer.
- Turnover policy, which insures your entire turnover in one go.
- Credit insurance per country, especially suitable if you mainly receive money from customers from one specific country.
Credit insurance vs. factoring
Factoring and credit insurance are similar in many ways. After all, they are both solutions for receiving money for invoices sent when the buying party cannot pay them. Yet there are also a number of important differences. For instance, factoring is a form of financing and credit insurance is a form of – as the name suggests – insurance. Whereas with credit insurance you pay premium on your turnover, this works differently with factoring. Factoring is about selling invoices to a factor. In return, you get paid the relevant amount by the factor within 24 hours. So whereas with credit insurance the insurance company only pays out when there is bankruptcy, with factoring you get paid within 24 hours at all times – regardless of the customer’s (financial) situation.