What is credit insurance?
Credit Insurance is a protection against the risk of default arising from sales of good or services at term to other private companies. The cover can be arranged for both domestic and/or export sales.
Why hire credit insurance?
Usually, companies hire insurance policies for their fixed assets – real estate, machinery, equipment, fleets. It is easier to measure such risks and the value of these assets.
Nonetheless, sales at term are directly related to the company’s business and they represent an important asset. By offering credit the company faces several risks, among them are the risk of default by the buyer and the systemic risk, which is harder to quantify.
Several companies have in their “Accounts Receivables” amounts that often exceed their Fixed Assets. Thus, the need to hire credit insurance arises.
Is it difficult to hire credit insurance?
The procedure to hire credit insurance is fairly simple. Still, it must be carried out with a wide technical support.
SpotCred’s methodology comprehends at a first moment the understanding of the business and its characteristics of its clients as well as the risk assessment directly linked to their activity, so as to present an insurance proposal to the insurers operating in the market.
Hence, this procedure ensures the issue of a financially viable solution which perfectly attends the specific needs of the client.
Hiring Credit Insurance through a Broker is more expensive?
Any insurance police must be dealt through a broker, according to the guideline of the Brazilian Insurance Regulator, aka SUSEP.
In addition, credit insurance requires a greater know-how. For this reason it is highly recommended the broker to be specialized in this product.
The Broker does not charge the product. Instead, its experience may even facilitate the hiring process and optimize the cost of the insurance.
What is the Company’s profile liable to hire a credit insurance policy?
In the Brazilian market it still lingers the idea that Credit Insurance is a hard to get product and that it is aimed at large corporations. In fact, this assumption is due to product lack of information, since it can be useful for all kinds of companies, regardless of its size.
Please, carefully analyse the following situations. Should your company meet one or more of them, credit insurance may be the best response to these challenges.
- Has your company got a turnover above 12 million per year and has it a portfolio of corporate clients of private nature?
- Does your company usually sell at term to your customers, thereby incurring the default’s risk during the granted credit period?
- Despite registering low level of commercial losses, as a result of a prudent and effective credit management, does your company maintain a constant concern for the quality of your customer base?
- Does your company usually seek credit risk mitigation alternatives of your customer base, such as Factoring, additional guarantees constitution, etc.?
- Has your company got strong business growth plans either through the increase of sales to traditional customers or the seek of new buyers?
- Does your company outsource and/or delegate some commercial procedures such as collection and recoveries?
- Your company keeps a permanent Reserve for Doubtful Accounts on your balance sheets.