Accounts receivables represent on average around 40% of a company’s assets. In today’s changing environment any payment failure or loss of any magnitude can become a serious operational threat. Companies with low margins and a high concentration of accounts receivables within a few of their large customers can be easily pushed to breaking point. On top of this, slow growth in mature markets and margin pressures drive companies to look beyond their customer base to remain competitive.
To win new customers, companies usually need to offer favorable payment conditions in unknown environments. But rapid technological advances and their effects on consumer behaviour and market demand, together with variations in government regulations and political instability in key markets, can change your risk profile very quickly. Reducing exposure to loss and not making assumptions that all risks are beyond your control are some of the main challenges that your organisation faces today.
TRADE credit insurance?
One of the most effective tools to consider for minimising bad debt risk while moving into new markets is trade credit insurance. Not just a tool to protect earnings, cash flow and equity, trade credit insurance supports business expansion safely and strategically by enabling you to offer credit to new customers in new sectors and locations as well as to expand credit lines to existing ones without increasing your risk.
Credit insurance includes credit assessment functions such as credit risk checks and permanent monitoring to ensure you are selling to creditworthy customers. It also includes collection services for overdue payments with typically high success rates, since insurers can see payment behaviour beyond a single account and can restrict or withdraw future credit to them if their bills are not paid within the terms. In some cases, trade credit insurance may also cover political risks on export receivables such as the inability to convert currency.
Credit insurance fees are typically based by the size of accounts receivables with a focus on the key accounts, previous loss history, level of risk associated with the customer, industry sectors and market locations. You can free bad debt reserves, use insurance costs as tax-deductible and increase working capital, and at the same time gain access to higher credit lines at lower financial costs due to improved creditworthiness. This allows you to focus on your business growth instead of spending time assessing risks and chasing late payments.
Software solutions to reduce your workload
If you have a large customer base in domestic and foreign markets you probably have a considerable workload to administrate your insurance contracts and contractual obligations to ensure you receive insurance compensation in the event of customer bankruptcy, default or political failure.
Some basic key policy terms that need to be fulfilled probably include some of the following: insurance contract duration, maximum invoicing periods depending on contract variants and corresponding group risks, grace periods before necessary overdue notifications to the insurer, obligation to declare periodically either outstanding balances or turn-over for the premium calculation, obligation to request enough insurance coverage to the insurer in time and the requirement to notify any adverse creditworthiness information from customers to the insurer.
In order to minimise your workloads, avoid errors that could endanger your insurance coverage and optimise the outcomes of your insurance contracts a software solution can be integrated into your corporate information system to automate most of your credit insurance processes through a real-time interface to major credit insurers.
Leading software solutions enable the administration of customers that are below or above discretionary limits, process automated responses from your insurer (acceptance, partial acceptance, rejection, reduction, withdrawal), monitor your credit insurance needs by setting limit applications and facilitate revenue or outstanding balance and overdue notifications.
Solving your credit insurance needs
In the SAP world, a very well established SAP AddOn solution in the market is SOA People’s Credit Insurance Management solution, fully integrated with our wider Credit Management Suite and ensures automation of your trade credit insurance. It gives you seamless mapping of your insurance contracts together with integration with your accountancy and order processing components within SAP. It enables you to check the insurability of all accounts receivables in real time, either by registering them in the system or updating existing ones based on previous and current granted insurance limits and agreed payment terms.
The application delivers accurate reporting for premium calculations avoiding under or over premium payments and safeguards your insurance cover and its performance. Credit Insurance Management lets you administrate political coverage and reflect changes in insurance terms and conditions of the whole credit portfolio or single accounts. The solution also provides an online interface to the three major insurers Euler Hermes, Atradius and Coface for customer indentification and further information.
Credit Insurance Management can be used with the Credit Management Suite to interface with information agencies such as D&B, Bonicheck Euler Hermes and Creditreform in real time to automate initial credit checks, especially with customers below discretionary limits.
It also automates the assessment of experience levels agreed in your insurance contract in order to insure customers to discretionary limits automatically, administrates existing credit limits, including the request of limit extensions to the insurer in advance, so that further measures can be taken by insufficient approved insurance limit in time.
Seasonal limits and optional insurance coverage such as Topliner from Coface, Top-up from Atradius or CAP/CAP+ from Euler Hermes can be administered in the software as well as further functionality for bank guarantees. An internal approval process workflow can be initiated as soon as credit needs or even sales forecasts exceed the total available insured credit limit.
Furthermore, if you‘re insuring your accounts receivables before selling them to factoring institutions you will also benefit from SAP ABS/Factoring Management integration to automate your factoring processes with institutions such as BNP Paribas, Eurofactor and Commerzbank.
Our SAP Credit Management Suite automates the whole process with a single SAP user interface with independency from credit bureaus, insurers and factoring institutions – protecting your working capital and increasing revenues while remaining flexible in a changing environment.
We can help you to check your credit insurance.