A customer who fails to pay can put pressure on your turnover, cash flow and growth plans. Credit insurance helps to mitigate this risk by providing insight into customers’ creditworthiness, support with debt collection and compensation should a covered claim remain unpaid.
As an independent credit insurance specialist, Xolv guides you in choosing and taking out suitable cover. We compare insurers on criteria such as credit limits, terms and conditions, cover and premiums, and also support you throughout the policy term. If you’d like to find out more about how credit insurance works, the different types available and the factors that determine the cost, please read on.
Credit insurance, also known as trade credit insurance, protects your organisation against the risk of customers failing to pay their invoices. This may be due to bankruptcy, suspension of payments or long-term liquidity problems.
Besides paying out unpaid invoices, credit information and debt collection are also part of the package, making credit insurance more than worthwhile. Want to know which credit insurance is best for your situation?
Taking out and using credit insurance follows set steps, with the creditworthiness of your customers being a crucial factor.
A credit insurance application starts with understanding your customer's financial position. Every credit insurer, including the ones Xolv works with, has a database with up-to-date financial data of companies all over the world. This enables you to check online the creditworthiness check of your (target) buyers and debtors. This is done by analysing hundreds of economic, political, commercial and financial indicators.
Once the insurer has a clear picture of your customer’s financial position, they will set a credit limit based on your requirements before delivery commences. This is the amount up to which the credit insurer considers it reasonable to supply goods on credit to the customer in question. The credit limit does, however, help to determine the amount that may be covered. The policy conditions and the agreed cover percentage remain decisive.
Then you can start doing business. In doing so, it is important that you always state the general terms of delivery and payment terms and record all agreements in writing. While you do business, the credit insurer covers the customer risks by continuously monitoring your customer's financial position. If necessary, they will adjust the limit in consultation with you during the process.
Whatever measures you take, there is always a possibility that your customer will be unable or unwilling to pay after a delivery, even if you send a payment reminder and a formal notice. If this is the case, we will investigate the reason for non-payment on your behalf. Generally, an amicable solution is preferable, and we can of course assist you with this. Discuss with Xolv which next steps are in line with your policy terms and the delivery agreements with your customer.
If the above actions do not help, then collection measures often necessary. The advantage of credit insurers is that they have their own collection agencies worldwide. This allows them - wherever and whenever - to put pressure on your buyers to make payment. Another big advantage is that credit insurers provide cover for multiple suppliers on the relevant buyer, which they reduce or withdraw upon collection. This puts additional pressure on the buyer to pay quickly.
In the event of a claim that is covered, the insurer will pay out in accordance with the policy terms and conditions and the agreed percentage of cover.
Protect your turnover with the right cover. Our advisers will be happy to help you.
The benefits of credit insurance are not only in financial security, but also in better insight and control over your debtor risks. Below we list the main benefits:
The choice of a credit insurer depends on your customers, the risks involved and the level of support you require. When comparing options, bear the following in mind:
Xolv compares these aspects and helps you choose a suitable credit insurance policy. Read our customers’ reviews
Exactly what credit insurance covers varies depending on the insurer, the policy and the circumstances. Not every type of cover is available for every business or risk. The overview below shows which solutions may be available. The policy terms and conditions, credit limits and exclusions always take precedence.
Whole-turnover credit insurance provides cover for the agreed insurable debtor portfolio, subject to the applicable credit limits and policy conditions.
Sometimes it can be more efficient to insure only specific customers or customer groups. With selective cover, you choose to cover only those customers with higher risk. This provides targeted protection for key risks and can save costs compared to full turnover cover.
Project-based credit insurance enables you to protect payments within a specific project. This is particularly useful for sectors such as construction and engineering, where payments are tied to project deadlines. This is how you minimise the risk of unpaid project receivables, insofar as these are covered by the agreed cover.
If your business is heavily dependent on one customer, single risk insurance offers a solution. This cover focuses specifically on the risk of default by a single key customer. This allows you to do business with confidence and remains protected if this customer defaults.
Do you deal with large purchase orders or payments to international suppliers? Credit insurance for advance payments can limit financial losses if your supplier fails to deliver after you have made an advance payment, subject to the terms of the policy. This prevents loss if your supplier is unable to meet its obligations, for example due to insolvency.
With bespoke orders or long-term production projects, there is a risk that the customer may ultimately fail to pay. Credit insurance at the manufacturing and contract levels protects your investments during production. This cover can provide protection against the agreed manufacturing and contract risks, subject to the policy conditions.
Sometimes exceptional losses arise beyond the usual risk. "Excess of loss" cover provides a cushion against extreme losses above an annual deductible. This cover is a valuable addition for companies looking to protect themselves against unexpected or severe financial hits.
Doing business in international markets involves political risks. Political risk insurance protects you against events such as war, civil unrest or government measures that could affect your deliveries or payments. This cover enables you to limit the financial consequences of covered political risks.
Would you like more information on any of these forms of credit insurance or advice on which type of credit insurance best suits your situation?
The cost of credit insurance is typically between 0.1% and 0.5% of your turnover. The exact cost depends on your turnover, any previous losses, the number of debtors you have (for risk diversification) and your debtors' countries of establishment, among other things. Although credit insurance is often thought to be expensive, in practice, insurance on outstanding invoices costs only a fraction of turnover. Moreover, these costs often do not outweigh the potential losses you may incur if you did not have credit insurance.
There are still many misunderstandings about credit insurance, while practice often shows otherwise.
It is often thought that credit insurance involves a lot of administrative hassle. That is not true. Of course, there are a number of steps you need to take, but these actually help to improve your debtor management and to reducing your credit risks. Experience shows that, in virtually all organisations, credit insurance fits perfectly within the existing credit monitoring system. In fact, it often proves to be of significant added value.
In the Netherlands, more than 80 per cent of all requested limits are issued by credit insurers. These are limits on outstanding to moderately performing companies. Really poorly performing companies or companies that do not want to provide information cannot be insured. It is the role of the credit insurer to test how creditworthy is a buyer. Both the credit insurer and Xolv will pull out all the stops for you to establish a limit on your buyer. However, when a credit insurer decides not to cover a buyer, it is wise to ask yourself: should I really want to do business with this non-creditworthy buyer?
This is a very outdated idea. Based on good disclosure, credit insurers can often still maintain cover on struggling companies. One of the most striking examples in recent years is the situation surrounding Vroom & Dreesmann (V&D). Days before V&D went bankrupt, credit insurers were still providing cover based on collateral and good ongoing disclosure. After the bankruptcy, the credit insurer immediately paid out the loss and was then able to recover the full amount from shareholders. Not providing financial data to credit insurers when things are going badly may seem logical but it certainly is not. It is precisely by not providing data that credit insurers are more likely to reduce or withdraw limits.
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Credit insurance is a form of insurance that protects businesses against the risk of customers failing to pay their invoices due to bankruptcy, suspension of payments or prolonged non-payment.
For companies with high turnovers and international trade flows, one large debtor can have a significant impact on cash flow and profitability. Credit insurance mitigates this trade risk and provides greater financial stability.
In addition, credit insurance strengthens the negotiating position towards banks and financiers, as outstanding debtors are seen as less risky.
When taking out credit insurance, the debtor portfolio, sector, country risks and turnover structure are analysed. On this basis, the insurer sets credit limits for each customer.
During the term, the insurer continuously monitors customers' financial situation. If there are signs of deterioration, a limit may be adjusted.
If a customer fails to pay within the agreed timeframe, a debt recovery process is initiated first. If payment is still not received and the claim is covered, the insurer will pay out in accordance with the policy conditions and the agreed percentage of cover.
Credit insurance usually covers:
Unpaid invoices due to bankruptcy
Long-term default
Political risks in international trade
Commercial risks such as insolvency
The exact coverage depends on the policy conditions and the structure chosen.
As a guideline, costs are between 0.1% and 0.5% of turnover, but the exact rate depends on your customer spread, debtor risk and claims history. Get advice for a tailor-made estimate.
Credit insurance may be of interest to businesses that supply goods on credit. This includes SMEs and larger companies, businesses with high invoice values or a heavy reliance on a few customers, and organisations that operate internationally.
Whether credit insurance is suitable depends, amongst other things, on turnover, customer diversification, payment terms and the level of cover required.
Many people think credit insurance is expensive or administratively burdensome, or that it only covers good debtors. In reality, they are affordable, workable and flexible.