Country risk
Country risk revolves around the political and economic climate in the country where you do business. Instability, changing legislation or weak financial infrastructure can cause problems for even healthy companies. This is why insurers classify countries into risk categories, with the help of local analysts who know the market inside out and are as close to the risk as possible.
Sector risk
This is followed by sector risk. Each industry has its own vulnerabilities. In construction, long projects with deadlines are normal, while fashion is highly dependent on seasons and rapidly rotating stocks. Insurers analyse price developments, profitability, financeability and insolvency figures, among other things, and use their network in the sector to request figures or comment on news.
Companies
At company level, continuous monitoring is carried out. Not only on a new application, but also on ongoing coverage. Things like age of the company, group structure and activities count, but financial information weighs most heavily. Liquidity, profitability and visible solvency are assessed in that order, with trends over several years being crucial. Structural losses increase the risk and a sudden change in trend is often reason to request additional information.
Pay
Payment behaviour is then the quickest and most direct indicator. Figures can look good, but structural late payment is a clear warning. Good payment behaviour can actually make the difference, although the information available varies between insurers.
All together
All these elements culminate in a rating, a company's report card. Based on this and the policy conditions, it is determined how many outstanding receivables can be insured: the credit limit.