Vital Benefits of Credit Insurance
It’s essentially better management of credit risk which ultimately will benefit the company’s bottom line. This is firstly achieved by providing companies with improved upfront information on the credit quality of their prospect and regular monitoring of the financial health of their existing clients.
Our role is to help the credit manager to better target his company’s credit policy towards the better clients and to support
him along the way from the credit vetting of clients to the collection of bad debts.
Is Credit Insurance More Compelling Now Than In The Past?
Some FDs may have had mixed experience in the past with credit insurers due to the price or lack of flexibility of the product. We believe that this has changed and we have developed tailored offerings for firms of all sizes in all sectors and have made substantial investment in our risk management processes, linking them internationally to offer a faster global service.
Overall, increased automation and improved risk management processes have allowed to reduce significantly the price of the protection we offer and credit insurance is now definitely a better value proposition than it was three or four years ago.
Why is the Quality of Information So Vital?
Traditional information on limited companies is very much a commodity. But most of the products available in the market are often only repackaging what is publicly available from Companies House. This is often only quantitative, non sector specific and usually outdated.
We underwrite about £60bn of credit exposure for our clients every year. We cannot afford to base our credit decisions on short term risks solely on the basis of an 18 month old P&L and balance sheet and a rough credit score. For us to make the good decisions and serve best our clients, we need the freshest and most accurate information.
Since 2002, in the UK, we have opened nine regional risk offices established in the major cities of the country. These offices are in charge of making direct contact with buyers (the clients of our clients) and of obtaining the most up to date information on their financial position.
This model is replicated worldwide within the Euler Hermes Group and is supported by a global information and risk IT platform which gives us access to first hand information on 40 million companies worldwide.
It is not always practical or economic for a company to obtain direct information on all its clients. We deliver a structured analysis and monitoring process of our clients’ risks based on our unique knowledge of credit risks.
Why is Prompt Payment of Claims So Important?
Credit insurance is about managing risks and securing cash flows. We strive to pay claims as quickly as possible to ensure our partners have no cash flow gaps.
What is the Financial Case For Taking Credit Insurance?
Simply, more effective and structured credit risk management enables companies to grow more profitably.
Credit insurance helps companies to avoid bad risks and trade more confidently with their better quality clients. Research carried out in 2006 from the Credit Management Research Centre at Leeds University Business School, ‘Credit insurance supports companies’ profitable growth.
An independent research study of 2,000 businesses in 10 European economies’ indicates that bad debts represent in average 0.38% of annual sales for companies using credit insurance (against 0.74% for non insured companies).
Credit insured companies spend less than others on commercial information, tend to obtain more and cheaper financing than the others (almost 50 basis points saving in average) and obtain better credit terms from their suppliers. In total, this research shows that 1.38% of a company’s annual sales could be saved through a credit insurance policy.
Euler Hermes Group
