Glossary
Frequently Asked Questions
What is trade credit insurance?
Trade credit insurance, also called accounts receivable insurance, is a financial tool which manages both commercial and political risks that are beyond a company’s control. It is protection against your customer’s failure to pay its trade debts. This can arise because your customer becomes insolvent or because your customer fails to pay within the set timeframe. With trade credit insurance, balance sheet strength is ensured, cash flows are protects, loan servicing costs are reduced and asset valuations are enhanced. A trade credit insurance policy also allows companies to feel secure in extending more credit to current customers, or to pursue new, larger customers that would have otherwise seemed too risky. It significantly reduces the risk of entering new markets.
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 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.
What are the benefits of trade credit insurance?
There are many benefits including:
What if my company hasn't experienced credit losses?
Protection from bad-debt losses is just one of the benefits of trade credit insurance. When your receivables are insured, you can also:
Can I just cover the accounts that I am worried about?
No, insurance programs can work over the long-term only if questionable buyers are covered. 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 on-line?
Yes. With EOLIS, Euler Hermes’ on-line policy management system, you can make credit requests, file a claim, and monitor your claims any time you want via the internet.
Can you recover unpaid bills on my company's behalf?
Yes. We offer a debt collection service to our customers
How much does trade credit insurance cost?
For the most popular policy, 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. Given that the average level of bad debt experienced by companies is approximately 0.7% of sales, 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 development, risk and credit management and bank financing.
Why choose Euler Hermes?
Euler Hermes’ experience is unsurpassed in North America. For more than 100 years, Euler Hermes has protected companies in nearly every industry against unexpected bad-debt losses. As North America's largest trade credit insurer, and as a member of Euler Hermes, the world’s premier trade credit insurer, the Euler Hermes Group has unparalleled access to proprietary information and global risk management expertise. The Euler Hermes group has offices in more than 50 countries across 5 continents with over 6,200 employees.
Euler Hermes supports its clients in all aspects of credit management. Its underwriters are industry specialists who will work closely with you to supply in-depth credit analysis and ongoing account monitoring to provide early warning of potential credit risks, before they become a loss.
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