It is a dilemma for many an entrepreneur: should you insure all your debtors or only the high-risk ones? For an entrepreneur, it is often clear which customer is more likely to have an unpaid invoice. It therefore sounds logical to insure only those high-risk customers. The experts at CreditDevice explain why that is not wise.
If there is any insurance you can go either way with, it is credit insurance. That makes it a completely different type of insurance than corporate liability insurance or legal expenses insurance. Those are much more static; you take them out and they can remain unchanged for years. With credit insurance, there are also different forms, kinds and types.
One versus all debtors
One of the most important questions is which debtor or debtors you insure. There are roughly two options:
- With a turnover policy , you insure all debtors. Incidentally, this type of insurance offers a choice of flavours, depending on the type of business and the needs of the organisation.
- A single risk policy allows you to insure one particular risk.
A single risk policy allows you to insure one particular debtor , for example. Or a few. Such insurance is therefore also called a debtor policy. But you can also insure debtors from one particular country . Even insuring one transaction is possible, for instance when you receive a large amount from one customer.
Here’s the catch
This sounds interesting and attractive, but there is a catch. “Compared to a turnover policy where all customers are insured, single-risk policies are relatively expensive,” says Hans-Peter Vloemans, Managing Director at CreditDevice. Sales manager Sian Houwaart also advises his clients against the single-risk policy. “I would not do that,” he explains, “because the risk is not well spread.”
The principle of insurance in 1 minute
It is about spreading risks. For the relationship between risk and premium, we need to dive a little further into the theory behind insurance. But don’t worry, it won ‘t be tough.
You take out insurance for an event that you hope will never happen, but there is a chance it will. For that small chance , you insure yourself. Especially if there is a big impact. For example, that the customer is so big that you cannot bear it when that customer does not pay. In short: small chance, big impact. Opposite: big chance, small impact. Once it is no longer really a question of whether something happens and it is almost a certainty, then it is no longer insurance.
Why you actually have a dental subscription
It is precisely for this reason that dental insurance is increasingly being discussed. After all, it is not a question of whether you go to the dentist; for most Dutch people, the visit twice a year is a given. A dental insurance is then actually more like a dental subscription.
It worksno differently with credit insurers ; they too want to spread risks. “With single risk policies, the risk for the insurer is high”, explains Vloemans. Houwaart: “If the probability is higher, insurers have to factor that in. ” Resulting in a higher premium for you as a business owner.”
Moreover, according to Vloemans , it is a misconception that new customers are riskier. “Statistically , bankruptcies are more common with existing customers you have been doing business with for years than with new, uncertain customers.”
This is how you keep the premium low
The most important knob to turn if you want to keep your premium low: spread risks . “So by insuring all your debtors, because there are also healthy debtors among them”, says Vloemans. All debtors means your entire turnover. Houwaart: “That generally makes the turnover policy the best credit insurance.”
For tailor-made advice, entrepreneurs can contact specialist brokers or the credit insurer itself. To make managing a credit insurance policy easier , CreditDevice has developed the PolisManager. Would you like to know more about this? Contact us now with no obligation.