Euler Hermes UK plc
Fabrice Desnos, the CEO of trade credit insurance provider Euler Hermes reveals how the business can help growth companies deal with bad debt
Company: Euler Hermes UK plc
Founders: Euler Hermes UK plc was founded as Trade Indemnity in 1918.
Based: Head office in London and operates from Regional offices in London, Manchester, Birmingham and Dublin.
Who are you?
Fabrice Desnos, CEO Euler Hermes UK plc.
What do you do?
We provide trade credit insurance – protection against the failure of a customer to pay for the products/services you have supplied. This might be because your customer has gone bust or simply failed to pay within an agreed credit period. We actively steer policyholders away from bad risks and towards better risks.
What does that mean in practice?
A company asks for a credit limit on each of the customers with whom they trade above an agreed level. Below this level – referred to as a ‘discretionary limit' – they do not need to ask for a credit limit. Instead, they can use their own sources to justify the trade credit they extend. Provided they trade within the set parameters and abide by the terms and conditions of the policy, they will be covered (up to the limit of cover agreed) if one of their customers should fail.
As regards the level of cover available through a credit insurance policy, typically 80%-95% indemnity applies, depending on the type of solution chosen (i.e. you will get back up to 95% of the money owed). Some companies may wish only to cover their top customers or cover against ‘exceptional' losses to reduce the policy premium.
What size company suits you?
Anything from a business with an annual turnover of £250,000 right through to the largest multinationals.
Why should I care?
More businesses fail coming out of recession than at the start. That means risks are increasing, as is the likelihood that one of your major customers may go bust. When you consider that companies are estimated to have 40% of their current assets in the form of trade debtors, even the customer you think you know best could end up being your downfall.
What can you do for me that I can't do for myself?
Making informed decisions about who you should/shouldn't trade with requires up-to-date information about their trading performance, rather than relying on historical data you can get yourself from a credit reference agency or Companies House.
Our risk analysts constantly analyse all available financial data relating to individual businesses (some 40 million worldwide) and trade sectors, against the background of wider national and international economic trends. This enables us to assess the risk inherent in any supply of goods or services on credit terms to each of your customers, thereby helping you to avoid or minimise losses.
As well as ‘commercial' risks, we also protect against ‘political' risk for those that trade abroad – perils such as inconvertibility, contract frustration, contract cancellation, and export and import restriction problems. One other point: banks often require you to be credit insured to secure further lending.
What mistakes will you stop me from making?
We will stop you from putting your business at risk by trading with businesses that won't pay you. Not all company failures are predictable and credit insurance will provide you with a safety net against unexpected defaults from your clients. That way you can concentrate your sales effort with the peace of mind that your business will not suffer from unexpected bad debts.
Can you give me an example?
If a company operates on a 5% profit margin, a £10,000 bad debt would require £200,000 of additional sales to compensate for the lost ground. Double the debt, and it is easy to see why businesses can be brought to the brink of collapse, unless credit insured.
Why should I trust you?
More than 90 years' experience, a proven track record, and thousands of businesses still trading because of the protection we offer. And because not everything you read about credit insurance in the press is true!
How much does it cost?
The cost of a policy is calculated as a percentage of a company's turnover, and will depend on its trading history, turnover, business sector and customers on which they need cover. The range is from less than 0.1% of turnover to more than one percent. Typically, a company pays between 0.3 and 0.7%, although this could be higher for certain political risks.