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What is credit insurance?

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.

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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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