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5 false facts about Trade Credit Insurance

"Trade credit insurance is too expensive and doesn't cover my needs" ; "Managing credit risk is an obstacle to my business development", or "I have financial resources to cover any unpaid invoices!" Have you ever had one of these thoughts? Re-examining stereotypes about TCI might be useful, particularly in an environment where claims experience is accelerating and the risk of bad debts is growing.

1. Managing credit risk inhibits sales

 

One wants to secure its business, the other wants to conquer new markets. Who says that credit manager and business developer have diametrically opposed goals? After all, what’s the point of sealing a deal with a client if they don't have the resources to fulfil their obligations? It’s a much better idea for your sales and credit management teams to work together… and even as closely as possible!

 

Just one outstanding debt can quickly and seriously undermine your business, especially given the sharp spike in payment defaults and corporate insolvencies since 2023, exceeding pre-Covid levels. Did you know that 80% of businesses today are faced with unpaid debts? And that 25% of these outstanding invoices lead companies to bankruptcy?

 

When you call in a global expert in trade credit insurance as Coface, you can manage risk more effectively and dial down your exposure to unpaid debts. Trade credit insurance allows you to grow your business securely, helping you make the right decisions to steer your commercial strategy more effectively.

 

2. Why on earth should I sign up to credit insurance? I know my clients really well… and for a long time!

First trap to avoid in commercial risk management? Basing your credit decisions exclusively on standard credit checks or the public records of your clients' financial statements and accounts. Don’t be fooled into a false sense of security: the danger is that you’ll only find out that your client or supplier is in (bad) financial health… when their business is already on the road to ruin! It will then be difficult to extricate yourself from the business relationship. Worse still, you’ll run the risk of incurring heavy financial losses.

To be able to develop your business with complete confidence, make sure you have a comprehensive, accurate and up-to-date assessment of your risk exposure. And this needs to be based on your markets and stakeholders alongside their geographical location. Coface's business information services integrate real-time data from multiple sources to assess whether a company is likely to fail over the next 12 months. This includes access to a database consisting of 190 million companies, payment incidents reported by our 50,000 clients, our worldwide network of information partners, and analysis carried out by our 700 risk underwriters. And all this comes with a guarantee: our clients benefit from the same data that underpins our underwriting decisions. If we don’t rely on it, why should you?

 

3. Fraudsters only target large companies

The truth is that fraudsters almost always take the path of least resistance, regardless of the size of the targeted company or the industry it operates in. Although no official figures exist about corporate fraud, all the research comes to the same conclusion: the scale of the problem is huge. What’s more, it has clearly got bigger in recent years as digitalisation has become much more widespread.

Are you a CEO, credit manager or chief financial officer? Be careful: your company could fall victim to fraud or a scam. Scams involving fake suppliers, for instance, are one of the top three sources of business fraud. And although the financial loss might not be too severe for large companies, it can be much more difficult for smaller businesses to bear.

With Coface’s business information and credit insurance services, you can boost your capacity to spot any potential scams. Our solutions help you control your risk exposure more convincingly and implement preventive measures. We analyse your potential clients and suppliers, and keep you posted about them as well as double-checking that they are who they say they are. We also monitor fraud reports, and provide you with regular updates about any suspicious activities involving your business partners.

 

4. Credit insurance is a high-cost solution that doesn't cover my needs

Companies always think that credit insurance costs too much... as long as their trading partners (clients or suppliers) honour their commitments! But are you aware of the real impact that just one unpaid invoice can have on your business? Let's say you are owed € 10,000, and your mark-up is 10% – your company will then be obliged to generate additional sales of € 100,000!

Coface’s credit insurance incorporates top-up services that help put an end to unpaid debts:

  • Business information: designed to provide real-time evaluation of the financial solvency of your trading partners (clients and suppliers) based on their economic and political environment.
  • Analyses and assessments issued by our risk management experts and risk underwriters to inform your decisions and guide your development strategy in the right direction for a specific market, sector or partner.
  • Collection of outstanding invoices.
  • Indemnification of unpaid receivables guaranteed by your credit insurance policy.

Our global expertise in risk management, highly recognized for over 75 years, helps you make your business more profitable and secure. We make our expert evaluations available to our clients via an all-inclusive portfolio of solutions: credit insurance, single risk insurance, factoring, bonds, business information and debt collection.

Coface's risk experts and sales teams provide support to over 50,000 corporate clients worldwide of all sizes and in all sectors as part of their credit risk management. Supplying business information is a crucial part of the service we offer clients, together with the close monitoring and assessment of the likelihood of default and access to real-time data on commercial risk – all with the aim of protecting your business from high-risk clients.

Although people often don’t know about credit insurance, it’s actually a powerful tool for controlling commercial risk. It involves monitoring the payment behaviour of existing clients, weighing up potential business partners and gathering business intelligence across the entire supply chain.
Nicolas Garcia, Group Commercial Director

This is particularly important in today’s uncertain and volatile economic environment. Last but not least, trade credit insurance reassures your business partners: banks, suppliers and clients. It’s a sign of good management, paving the way for better financial terms for your transactions. Thanks to our unique network of 200 local experts and over 250 legal partners, if you suffer a loss anywhere worldwide, Coface will indemnify you to the tune of 90% on average with a fast turnaround.

Cash flow and working capital requirements, facilitated access to financing or securing the supply chain: the return on investment of a trade credit insurance policy is difficult to measure, but the benefits are widely known and recognised by users. Especially since it means you can grow your business with complete peace of mind. Which is something you just can’t put a price on!

 

5. Self-insurance is cheaper!

What's the point of signing up to credit insurance if I already have an adequate financial cushion if a client’s business fails? While this is true in theory, it’s a solution that rarely covers all the bases. In addition to the real cost of unpaid debt, when a big business collapses, it can create a domino effect with many of its suppliers failing within a matter of months, wreaking havoc on the sector as a whole. Do you have sufficient reserves to cover the loss of several clients or suppliers in such a short timeframe? Do you have debt collection expertise? And how about payment habits, and local laws and specific requirements?

You opt for self-insurance for as long as your business partners meet their obligations. But are you fully aware of all the risks for your company? Your business in your domestic and export marketplaces involves extending payment deadlines to clients day in, day out. But it’s a practice that leaves you open to the risk of a client or supplier defaulting or filing for bankruptcy. And if that happens, unpaid invoices and outstanding debts will shrink your cash flow and even threaten your company’s very survival.

In fact, self-insurance is a “solution” that uses up more resources – human and financial – than expected, a list that includes gathering and analysing financial information about your partners; commercial and financial arbitration; decisions about amounts outstanding to be granted; collecting unpaid invoices; checking the solvency of a debtor; and out-of-court negotiations versus legal proceedings. The reality is that self-insurance is the same as having no insurance or protection at all. So, you’re taking “blind” risks, meaning there’s no guarantee that your company will be indemnified if it suffers a loss!

Authors and experts

  • Nicolas GARCIA

    Group Commercial Director

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