Trade receivables can represent up to a third of the total assets on a company’s balance sheet. Managing your trade receivables effectively therefore plays a key role in:
1. Delivering comprehensive protection against the risk of insolvency
2. Enhancing your customer relationships
3. Improving banking relationships and access to finance
4. Supporting sales expansion
1. CREDIT INSURANCE PROVIDES COMPREHENSIVE PROTECTION AGAINST THE RISK OF CUSTOMER INSOLVENCY
The positive financial impact of credit insurance is generated through:
- Improved Days Sales Outstanding (DSO) and on-time payments
- Improved business planning through the reduction of unknown risk
- Reduced levels of bad debt and incidences of fraud
- Higher levels of repeat business
- Lower levels of customer queries and disputes
- More profitable sales
- Lower overall average costs of credit management.
Credit management costs are lower because credit insured firms have access to better quality credit information and market intelligence that in turn drive better decision-making and reduce risk.
How does it work?
Credit insured companies’ (also known as policy holders) risks are insured by means of a credit limit on each of their customers or “buyers”. The Euler Hermes credit limit is an objective opinion on the financial condition of a buyer. It is based on expert knowledge and experience combined with sophisticated Euler Hermes underwriting systems that allow thousands of Euler Hermes credit limit decisions to be made daily. Every credit limit is monitored and adjusted if needed (when trade increases or if the buyer’s financial situation changes).
2. CREDIT INSURANCE ENHANCES CUSTOMER RELATIONSHIPS
Companies who are credit insured benefit from the continuous monitoring by Euler Hermes of the financial situation of their customers and potential customers. Policy holders can therefore use this knowledge to increase the level of credit – and therefore the level of trade – for certain customers, thereby further strengthening the relationship.
3. CREDIT INSURANCE IMPROVES BANKING RELATIONSHIPS AND ACCESS TO FINANCE
Credit insurance generally helps companies gain greater access to bank funding, and on better terms, because their receivables are insured, which in turn impacts positively on cash flow. Credit insurance is more affordable and easier to administer than a letter of credit, and allows business to be conducted more freely on open credit terms, worldwide. It can also help the policyholder to qualify for larger credit lines against better terms.
4. CREDIT INSURANCE SUPPORT SALES EXPANSION
Credit insurance helps to support a more efficient credit management process, reducing administration costs and maximizing the recovery of unpaid debts. It enables credit managers to focus on more ‘value-added’ activities, such as supporting their sales teams in the development of new commercial opportunities.