Credit insurance is a product specific to SMEs that offer credit sales. It concerns above all the commercial risk that arises during a sale. In this context, it should not be confused with monthly insurance which can be taken out when a loan is taken by an individual. Our explanations.
The risk of delusional
Credit insurance as such has no direct link with consumer credit . It mainly concerns the self-employed and SMEs which offer the sale of goods or services on credit , that is to say with the possibility offered for the company’s client to pay after receipt of the service . By offering this possibility of payment after delivery of the service, the company is exposed to the risk of non-payment by customers. We thus speak of the risk of delinquency which includes:
- The risk of impossibility of payment of the customers: if for example the delivered goods cannot be paid by the customer following an insolvency or a bankruptcy.
- The risk of customer refusal to pay: in the event, for example, of a dispute over the service provided.
For a company, the realization of this risk leads to a double financial loss: on the one hand the service was not paid, and on the other hand it is necessary to add to this first loss the time and the money necessary for the attempt collection of the unpaid debt.
Credit insurance: protection against the risk of delinquency
Faced with this risk, credit insurance works like a traditional cover: in the event of the risk occurring, the insured company receives compensation from the insurer. This is called credit insurance because it specifically insures against the risks of selling on credit . This type of cover is therefore aimed at SMEs and the self-employed, and has no direct link with consumer credit. For more information, see for example the Business-factoring page dedicated to credit insurance.
Monthly insurance, or PPI
Credit insurance, which concerns businesses, should therefore not be confused with monthly insurance . This coverage, called PPI (for Payment Protection Insurance), is an optional product for people who take out consumer credit and guarantees the repayment of the credit in the event of unemployment, illness or accident. For more information, Multicredit offers a detailed explanation on how this insurance works.