By allowing deferred payments, SMEs effectively constitute the largest bank in the Netherlands. Because these companies invest in machinery and inventory - and are not paid directly themselves - their investments require financing. That financing can be achieved by borrowing money from a financier or by paying suppliers a little later. So the money does not evaporate, but lies safely in the 'vault' of SMEs.
'Credit insurers indispensable'
Paying on credit is therefore important for the economy. Credit insurers play a major role in this as they insure the risk of non-payment and/or bankruptcy. In this way, they facilitate deferred payments and prevent suppliers themselves from becoming involved in insolvency of its customers. State Secretary of Finance Hans Vijlbrief even called credit insurers indispensable in the FD earlier this month. 'They provide the lubricant for the economy,' said Vijlbrief. 'This sector is relatively unknown, but without them, the economy comes to a screeching halt.' This is underlined with figures: through their risk coverages, insurers enable deliveries worth some €200 billion a year.
Balance
The banks, in turn, are more likely to extend credit if they are included as lien holders on a credit insurance policy. This is how we keep each other in balance. But that is how things are in an ideal world. In times of recession/crisis the number of bankruptcies is skyrocketing. The call for coverage from the credit insurer is then great, but a insurer cannot bear all risks alone. All an insurer wants is to exclude bad risks from coverage. Banks also become more cautious in this situation. The result: people point to the government.
Responsibility
The government is (thankfully) taking responsibility by creating a substantial safety net for credit insurers. Under the scheme, the finance ministry will guarantee a significant portion of credit insurance and take over the payment risks of SMEs for the whole of 2020. This will (finally) give SMEs - and in their wake credit insurers - the appreciation they deserve.
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