Credit insurance: the boost your company needs to minimize the risk of nonpayment

In economic terms, delinquency refers to clients or debtors who do not meet or are delayed with their payment obligations in the agreed time, an error that affects the financial health of companies.

A sectorial crisis, an adverse economic situation, or the financial difficulties of the debtor themselves can be the cause of these situations, although there are also true professionals in delinquency.

The consequences in both cases are the same: creditor companies may face liquidity problems, which in turn could hinder their ability to pay their suppliers on time; they may also encounter difficulties in accessing financing and experience a deterioration in their profitability.

As exemplified by the data found in The European Consumer Payment Report (ECPR), published in November 2024, nonpayment remains one of the major challenges of commercial relations in the business world.

More than half of the companies consulted for this report acknowledge being concerned about their debtors’ ability to pay:  the data reflects how some companies are delaying their invoices beyond what was agreed.

The most significant aspect is that this situation becomes a vicious cycle: companies are forced to extend payment deadlines because they themselves have no choice but to lengthen their collection periods with their clients.

Hence, the new proposal of the European regulation to control payment times in commercial relationships called the Late Payments Regulation places more emphasis on late payment than on non-payment itself.

Pending the completion of the processing of the text approved by the European Parliament in April 2024, the new regulatory framework to combat delinquency at the European level, for the time being, it establishes maximum payment deadlines of 30 days, both for transactions between companies and between administrations and companies.

However, in operations between companies, an extension may be negotiated up to a maximum of 60 calendar days, if expressly included in the contract. A special period of up to 120 days is also granted to the retail sector, which often requires longer periods due to factors such as low product turnover and the seasonality of articles.

Credit insurance is a mechanism that helps protect against these delays or non-payment of sales. If you insure your facilities, merchandise, or machinery, why not take out coverage for accounts receivable?

These insurance policies mainly offer three services:

• By analyzing the risk of your clients, so that you can focus your sales on those most trusted by their solvency and good payment practices. To this end, credit insurance companies have databases with comprehensive and up-to-date information on executive seizures, lawsuits, payment suspensions, bankruptcy, etc.
• If, despite everything, a non-payment occurs, your insurance company will compensate you for the losses incurred in your business operations, thus ensuring your cash flow and the continuity of your activity.
• It will also be responsible for implementing the appropriate recovery actions to recover unpaid credits through amicable or legal claims.

In conclusion, this type of insurance not only compensates you but also helps you reduce the risk of nonpayment or allows you to recover unpaid accounts.

Today, most of the credit insurance offering covers both domestic and domestic operations, as well as those taking place internationally, i.e., at the export level.

In addition to the above, these policies provide a clear competitive advantage in aspects such as obtaining better financing conditions, by providing greater security to financial institutions.

In addition to protecting cash flow and avoiding the need to seek extra financing, having credit insurance enables greater operational liquidity, which promotes commercial growth in new markets and increases the client portfolio with greater agility.

MAPFRE markets credit insurance through Solunion, the joint venture created in 2013 and equally owned (50%) alongside Allianz Trade (formerly Euler Hermes). It offers its products and services for commercial risk management in Spain and Latin America.

No matter the turnover of your company, Solunion credit insurance will provide you with the peace of mind of securing your sales with a trusted partner, so you can focus on what matters most: managing your business.

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