Example 1: Debt equal to or lower than your limit
Let’s say you have an agreed credit limit with a customer of £10,000 and you have an outstanding debt of £10,000. We cover you up for the full debt. When you place your collection case with us, we will try to recover the whole debt: £10,000.
At this stage, we will do a pre-assessment of the debt-covered percentage, which is the ratio between your cover and your total debt. For example, with a £10,000 limit and a £10,000 debt, your debt-covered percentage is 100%. If your debt is higher than your credit limit, then your debt-covered percentage reduces.
For collecting that £10,000, we charge a fee that covers our work and any legal costs. In this example, let's say no legal action is required so the fee is just the commission fee of 10% or £1,000, and assume your policy indemnity is 90%.
The indemnification of the costs applies as follows:
Fee (legal and commission) x Debt covered % x Policy indemnity % = Euler Hermes indemnification.
We will then indemnify you:
£1,000 x 100% debt coverage x 90% policy indemnity = £900.
In the end, the cost is reduced and instead of £1,000, you would only pay £100 + full VAT for the recovery of the £10,000 debt (a cost of 1% of the amount collected).
If your terms and conditions with your customer allow you to recover collection costs, we would try to recover this amount as well and therefore you would have recovered the debt at no cost.