Factoring opens up new possibilities for corporate financing, improving cash flows to make the business run more smoothly.
One of the key requirements for financing foreign accounts receivable is insurance against counterparty default. The creditor is insured against the payer’s defaulting payment, e.g. in the event of bankruptcy or cessation of payments.
Insurance against counterparty default not only offers protection against default; the payer is also assessed at the outset and given a credit rating by the insurance company. If an insured receivable defaults then the insurance company initiates a collection process which will save the creditor both time and money. Collecting a debt abroad can be both complex and time-consuming. However, the insurance company pays compensation no later than 180 days after the invoice is issued in the case of a demonstrable event of default.
Premiums for insurance against counterparty default are calculated on the basis of turnover or outstanding receivables on a monthly basis. In addition to the premiums a nominal annual fee is charged per debtor.