Credit insurance provides assurance in situations where a buyer (your company’s customer who is a legal person) is given the opportunity to pay invoices after goods have been delivered or services have been provided, and there is a risk of non-payment on the part of the buyer.
In the event that the buyer is unable to pay for the received goods or services, KredEx will compensate you for the damage incurred from their failure to pay. The inability on the part of the buyer to fulfil their payment obligation may be due to the buyer’s temporary or permanent payment difficulties, or political events in their country of location.
It is important to note that credit insurance is intended for situations where the buyer is financially unable to meet the payment obligation. If the reason for non-payment is other than the buyer’s realisation of a payment risk, credit insurance may not be sufficient.
For example, KredEx cannot help if hackers have stolen the goods using the buyer’s company details, and it turns out that the company on whose behalf the goods were ordered is not actually involved in the transaction.
Credit insurance is intended for all legal persons registered in Estonia who sell goods or provide services in such a way that the buyer has to pay after the goods have been delivered or the service provided.
It is important to note that credit insurance cannot cover transactions where the buyer does not become the owner of the item.
For example, you cannot insure claims arising from contracts relating to use, not purchase – such as rent, lease, licences, franchises, etc.
The cost of a credit insurance service consists of two components:
1. Buyer’s assessment fee
This fee varies depending on the buyer’s country of residence and ranges from EUR 20 to EUR 80 per buyer.
2. Insurance premium
This is the fee for the insurance cover and is calculated as the insured turnover of your business multiplied by the insurance tariff.
The following factors are taken into account when determining the insurance tariff: the sector of activity of the buyer(s), the financial situation of the buyer(s), the length of the payment terms and the percentage of your total turnover that is insured.
The amount of the insurance premium is calculated individually by KredEx.
You can insure sales transactions with both Estonian and foreign buyers.
Only legal persons can be buyers.
Credit insurance covers up to 90% of the damage.
First, your company has to request payment from the buyer and send reminder letters. If this does not help, KredEx must be informed. The insurance contract states the deadline within which KredEx must be notified. KredEx will then take over or coordinate the recovery activities.
An insured event has occurred if:
1) The buyer has become insolvent (the court has approved the buyer’s reorganisation plan or declared the buyer bankrupt)
2) The buyer is in long-term debt (default lasts more than 6 months)
3) The buyer has failed to pay because of the realisation of a political risk (e.g., a decision by the government of the buyer’s country of residence or another political event having occurred in the buyer’s country of residence that prevents the buyer from paying).
The imposition of customs tariffs does not constitute a political risk.
If the buyer is subject to a financial sanction after the purchase-sale transaction has taken place, a political risk has materialised.
The insurance benefit can be applied for after an insured event has occurred. An application must be submitted to KredEx in order to receive the insurance benefit. KredEx has developed a form for the application. In addition to the application, documents proving the occurrence of the insured event and the damage must be submitted.
Care must be taken to ensure that the application for compensation is submitted within the time limit specified in the insurance contract. If you are late in submitting your application, KredEx is under no obligation to review the application or pay the insurance benefit.
An application for insurance compensation must be submitted within the deadline specified in the contract, even if the buyer’s debt is being collected by a debt collection service.
For the purposes of loss adjustment, documents must be submitted proving that an insured event has occurred and that the loss has been caused as a result of it, as well as documents showing that the policyholder itself has duly fulfilled its obligations.
These documents are: documents proving that the sale has taken place (contracts or written agreements, invoices, delivery documents), accounting statements of invoices submitted to the buyer and receipts received, bank statements of receipts received from the buyer, payment claims submitted to the buyer, or payment claims submitted to the guarantor if there is a guarantee.
The exact list of documents depends on the circumstances of the specific case, and if not all documents have been submitted with the application for insurance compensation, the KredEx claims handler will let you know what else needs to be submitted.
If the buyer disputes the payment obligation, the claim is unclear.
In such a case, KredEx cannot pay compensation immediately because it is not clear whether the buyer is obliged to pay or not.
Therefore, you must first resolve the dispute that has arisen. If the dispute cannot be resolved other than through the courts, you should consider whether going to court is appropriate. If your claim against the buyer is proven by a court decision, but the buyer still fails to comply with it, KredEx can also compensate you for the damage caused based on the court decision.
Credit insurance can help you protect the cash flow of your business.
KredEx assesses the creditworthiness of your existing and new buyers so that you can sell in a way where the risks are mitigated. This will help you to enter new markets more boldly and start working with new partners.
You have the opportunity to give your customer a risk-free payment term and thereby increase your sales.
If necessary, KredEx will take care of requesting payment from the buyer.
If the buyer is unable to pay for the goods or services received, KredEx will compensate up to 90% of the loss incurred.
