Trade Credit Insurance: a triple safety belt against customers who don’t pay

The public health crisis may gradually be coming under control, but the economic aftershocks of the lockdown will long continue to be felt by many businesses. Economists at Euler Hermes are expecting an avalanche of payment defaults and insolvencies in the coming months. Truly knowing your customers is the message now more than ever. Trade credit insurance is the ideal instrument for doing so.

Now that the strict lockdown is over, many business leaders are hoping for a rapid return to business as usual. However, Yannick Vermetten, commercial director of Euler Hermes BeLux, urges caution. “Naturally, a relaunch is important, but growth in turnover should not be fetishized. Stability and a solid cash position are the priorities today. Opt for smaller orders for which you are sure you will be paid. Larger deals are much more uncertain. Determine whether customers have sufficient capacity to pay. Prudence and a sense of realism, that’s what it’s about today.”

Uncertain climate

Distinguishing healthy businesses from unhealthy ones: easier said than done. Many entrepreneurs like to boast that they know their customers through and through, but as Yannick Vermetten sees it, the current economic climate brings a great deal of uncertainty with it. ”Companies that showed excellent figures last year may now be experiencing difficulty. Things can turn around quickly: just look at the recent insolvencies of E5-Mode and Swissport. Stronger players may also face hard times. Old certainties are suddenly destabilized.”

Trade credit insurance as a triple safety belt

The trade credit insurance policy offered by Euler Hermes provides a triple safety belt. ”First, we screen the creditworthiness of new customers. If you enter into a business relationship with a company, we continue to monitor it. We pick up all the signals, such as a late payment, a change in management or a takeover, and we keep you informed. If in spite of everything, the customer doesn’t pay, we try to collect the outstanding invoice. If possible, with an amicable settlement, or if necessary, through the courts. If these do not bring results, we indemnify 90% of the unpaid invoices. So that you can focus on what really matters: doing safe business.”

Payments guaranteed within 60 days

Trade credit insurance has many advantages and a positive impact on the Day Sales Outstanding (DSO): Euler Hermes guarantees payment of the invoices issued within 60 days. “With a trade credit insurance policy, companies need less working capital and resources: reserves for potential losses are not necessary. The time saved is also nice to have. Many companies screen their customers, but a lack of time, knowledge and human resources stand in the way of active monitoring.”

From standardized to customized solutions

According to Yannick Vermetten, trade credit insurance need not be overly complex. ”For small SMEs  there is a standard solution that offers your company good protection. With a simple check, you will find out immediately whether or not a company is solvent. We work with a scale of 1 to 10, on which 1 is very good and 10 is bankrupt. For large companies, we offer customized solutions, which enable you to determine the amount of coverage separately for each customer. Trade credit insurance is the capstone of our clients’ credit management. Good monitoring and screening are essential, but trade credit insurance completes the circle.”

Relaunch measures and credit insurance go hand in hand

Many entrepreneurs today are investing in the relaunch of their business. An understandable choice, even if, according to Yannick Vermetten, this does not mean that you should neglect trade credit insurance. ”It’s a both-and solution, the one does not exclude the other. You can of course invest in the relaunch of your business, but what if at the end of the day your invoices remain unpaid? Which in turn will make it difficult for you to pay your own suppliers. Many companies are experiencing turbulent times. This is the perfect moment to take a close look at your customer relations. Which customers should you give longer payment terms, and which ones not? An external partner such as Euler Hermes can play an important role in such decisions.”