Business credit insurance, in principle, aims to protect a business from an unpaid invoice by a customer. The company collects the amount of its invoice and the risk of non-payment is transferred to the credit insurance contract.
A Corporate Credit Insurance contract covers both domestic and export customer risks. Export risks can be insured independently of Domestic risks.
A Credit Insurance contract is offered by a Credit Insurance company and a Broker. Customer risks for export are thus covered.
In fact, a business credit insurance contract is also a financial instrument making it possible to reduce the working capital, to improve the competitiveness of the company while better protecting it from the vagaries of the economy.
Credit insurance, customer risks, credit risk
Credit insurance contracts are issued by specialized insurance companies and companies, independent or subsidiaries of large groups.
These brokers, brokerage firms, or companies offer insurance contracts geared towards a clientele of SMEs and SMIs, therefore based on the credit insurance formula by outstandings.
In recent years, the distribution of a surplus credit insurance product has been developed, which was originally provided by a London company.
SYGA is positioned as a broker in business credit insurance, credit risk, and customer.
Saga offers specialized advice in financial risks and contracts tailored to the specific needs of its clients.
Definition of a business credit insurance contract
A credit insurance contract aims to protect the assets of a company’s balance sheet by compensating for the default of its customers who have become insolvent. The notion of insolvency as an operative event has evolved over time and, depending on the nature of the contracts, the notion of compensation overlaps with advisory and recovery services.
Parties to a credit insurance contact
A credit insurance contract assumes a bilateral relationship between an insurance company and a business.
The purpose of a business credit insurance contract
The purpose of a credit insurance contract is to provide a business with protection against the default of a business customer in the event of his insolvency. (customer risks)
The criterion of potential insolvency of a client company as opposed to that of non-payment explains that business credit insurance can only be acquired to protect against the risk on entities that may be legally insolvent, unlike States for example.
In the terminology of the type used by the French administration, the commercial (client) risk is taken into account as opposed to the political risk.
Two types of business credit insurance contracts are practiced
Credit insurance by current
which allows an insurer to examine the entire portfolio of claims of its insured and to set limits of coverage by debtor or type of debtor. In this type of contract, the insurer offers, upstream of the transaction between the insured and his client, advice on the solvency of this possible client, and downstream collection services. Any loss linked to an insured event (established or presumed insolvency) will be compensated within the limit of the outstanding amount fixed on the debtor concerned, less the contractual deductible;
Surplus credit insurance or “catastrophe credit insurance
which allows an insurer, after examining the credit and recovery policy of its insured, to offer protection in excess of an annual deductible for all claims confused. On an annual basis, the guarantee comes into play as soon as this excess amount for cumulative claims is reached and within the limit of the sum insured. In this type of contract, the insurer does not offer services upstream or downstream of the transaction between the insured and his client, the insurer having convinced itself of the ability of the insured to manage his risks.
Two types of credit insurance contracts are practiced Credit insurance by current, which allows an insurer to examine the entire portfolio of claims of its insured and to set limits of coverage by debtor or type of debtor. In this type of contract, the insurer offers, upstream of the transaction between the insured and his client, advice on the solvency of this possible client, and downstream collection services.
Any loss linked to an insured event (established or presumed insolvency) will be compensated within the limit of the outstanding amount fixed on the debtor concerned, after deduction of the contractual deductible; Surplus credit insurance or “catastrophe credit insurance”, which allows an insurer, after having examined what is the policy of credit and recovery of its insured, to offer protection in excess of an annual deductible for all claims combined.
On an annual basis, the guarantee comes into play as soon as this excess amount for cumulative claims is reached and within the limit of the sum insured. In this type of contract, the insurer does not offer services upstream or downstream of the transaction between the insured and his client, the insurer having convinced itself of the ability of the insured to manage his risks.
Client risk transfer: its objectives
Prior to any self-insurance or risk transfer decision, the company must be able to proceed:
Analyzing its trade receivables, monitoring the solvency of its buyers, its development, and their financial situation;
A financial analysis of customer risk in relation to its result by determining the value of outstandings;
the main overdrafts granted, the maximum possible loss; Organizing the collection of unpaid debts.
The objectives are of two types:
Asset Protection for the managers who own their business. Credit insurance here makes it possible to guarantee the sustainability and independence of the company.
Preserving the company’s profitability: this is about creating value for shareholders. Credit insurance guarantees operating cash flow and reduces the need for working capital.
And correspond to two business structures:
SMEs and SMIs are mainly concerned by a heritage approach and for which risk transfer takes place globally;
Large companies that favor the shareholder approach and for which the risk transfer takes place in excess or from an unacceptable threshold of losses
Global business credit insurance
Prevention Customer risk monitoring:
The insurer sets the guaranteed amounts for each named customer. The insured can work without prior approval with so-called unnamed clients.
Collection of trade receivables:
The insurer collects unpaid debts in lieu of the company. The recovery costs are the responsibility of the insurer.
Compensation:
In general at the first Euro with a maximum guaranteed portion of 75% of the guaranteed amount of the debt including tax
Premium:
Results from the application of a rate specific to each company to the insurable turnover excluding administration, individual, and a related company, and guaranteed by the insurer.
Business credit insurance, exceptional losses
Risk prevention and monitoring:
The insurer delegates to the credit manager the setting of credit ceilings granted to customers. Beyond a determined level of outstanding, the insurer can be consulted to set the amount of the guarantee per customer.
Debt recovery :
The credit manager carries out recovery operations up to the bankruptcy of clients and possibly beyond. The insured generally retains the collection costs at his expense.
