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What is credit insurance?

Technology/Functionality
Answer

In the business world, keeping operating capital available at all times is essential. However, when an invoice is raised, it may take up to 90 days to be honoured. During all this time, staff and suppliers must be paid, and investments made to maintain the company’s growth. In situations like this, factoring is an appreciated banking service, but adding credit insurance to any factoring facility is recommended to guarantee the business owner’s peace of mind.

 

Factoring means that when a company raises an invoice, a finance company pays the major part of the invoice straight away, thus shortening the delay between invoice and payment. Then, the finance company recovers the debt with its client’s customer, and transfers the remaining amount to its client’s account. In general, finance companies make up to 90% of the invoice amount available within 48 hours. A percentage of the processed amount is charged to cover for administration costs and interest.

 

 

Credit insurance usually goes with factoring. Its purpose is to protect the finance company and its client by insuring against the risk of non-payment. This is particularly interesting for SMEs, for which delays in debt recovery or customers’ insolvency can have a dramatic impact. Most companies which offer factoring facilities don’t provide cover against non-payment on its own, that’s why they usually partner with trade credit insurance companies. Subscribing to such an insurance scheme therefore guarantees payment at a fixed date and cover unexpected capital requirements quickly and easily.

 

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An additional question: Respond to this Question

  • Why turn to a factor rather than seek a bank loan?
  • How does a factoring finance arrangement work?
  • Who collects the debt due, the factor or my business?
  • What's the difference between factoring with recourse and factoring without recourse?
  • Does factoring require a minimum number of invoices?
  • What does a factoring company do in the case of nonpayment?
  • Do my customers know of the factor’s involvement?
  • What are the requirements for invoice discounting?
  • Is there any collateral requirement for factoring?
  • How quickly can I access cash for the invoices I sell to a factor?
  • Who do I turn to if I have a dispute with my factoring company?
  • I have overseas clients; can I factor international invoices?
  • Is it easy to terminate a factoring arrangement?
  • What regulations apply to factoring companies?
  • What does working capital mean to your business?
  • What is the difference between factoring and bill discounting?
  • What is export factoring?
  • What is the difference between invoice factoring and merchant cash advance?
  • What is the difference between factoring and securitisation?