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Credit insurance is a way of ensuring you are paid for deliveries on debit account. It is sometimes also called a debit insurance. The insurance company will pay you if the customer cannot pay for the products or services you have delivered, for instance in case of bankruptcy or a suspension (or moratorium) of payment.
Who can benefit from credit insurance?
Anyone who delivers goods or services on debit account to business customers can benefit from taking out credit insurance. Insurance companies often do more than just pay out claims; they can also help you manage your bookkeeping accounts.
Different types of credit insurance
There are different types of insurance. Which type is best for you depends on several factors: the size of your company, how you do business, and how many deliveries you do on debit account.
- Insurance per transaction: if you receive a large payment from a customer every now and again.
- Insurance per debtor: if you have a customer who regularly pays a large sum.
- Credit insurance per country: if you mainly do business with customers from one or a few countries.
- Turnover insurance: this is the most complete type of credit insurance. If you take out turnover insurance, you insure your entire turnover against non-paying customers.
How does credit insurance work?
You pay a percentage of your turnover. If your customer is unable to pay, the insurance company will pay you. It takes over the claim on your client, and will try to get the money from the client. You can only take out credit insurance for business customers.
How much does credit insurance cost?
Your insurance premium depends on the type of insurance you choose. Insurance companies determine the premium based on:
- turnover volume
- the number of debtors (risk-spreading)
- the cover percentage for claims (often between 75 and 85%)
- your debtors’ country of residence
- the amount of deductible excess (how much of the damage you have to pay for yourself)
What does credit insurance cover?
- Unpaid bills, if your business customers are unable to pay
Some credit insurances only insure against non-paying Dutch customers. But there are also insurances that cover foreign customers, and causes for ill-payment like political unrest, war, natural disasters, or shortage of funds.
What does credit insurance not cover?
Usually, credit insurance does not cover:
- ill-intent: your customer is able to pay, but fails to do so
- deliveries to private individuals
Read the policy
Always take care to read the insurance policy. That way you will know what is covered, and what isn’t; this differs from company to company. If you want, you can get advice from an independent insurance consultant.
Adequate debtor management is often a condition for insurance companies to sell you credit insurance. You must do everything in your power to receive payment for your deliveries. These are some of the obligations insurance companies often impose:
- You must agree upon good terms and conditions for delivery and payment with your customers.
- You must put an ownership reserve clause in your sales contract.
- If your customer fails to pay on time, you must send reminders.
- You have to inform your insurance company directly when a customer fails to pay on time.
Where can you get credit insurance?
Some sector organisations offer credit insurance to their members. Banks often offer credit insurance as part of a wider range of financial products. And there are many insurance companies you can turn to.
Export credit insurance
If you export products or services, you can take out export credit insurance to make sure you get your money if your foreign customer does not pay. This insurance comes with conditions.