Find out more about the latest developments in credit risk management for your industry.

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Expiring protective shield for trade credit insurance

Euler Hermes recently announced that it will reduce or phase out cover at the end of the year for clients whose creditworthiness appears to be weak.
Blog Post
07.09.2020, Tobias Schwerdtfeger

Limit reductions or cancellations are imminent

With this announcement, the insurance company is reacting to the expiry of the German government's protective shield, also at the end of this year. For credit management in companies this results – once again – in a completely new risk situation.

Protection against default on payments

Many companies use the advantages of trade credit insurance to protect themselves against default on payments. Since the beginning of the crisis, the threat of payment default has increased dramatically due to falling demand. The German Federal Ministry for Economic Affairs and Energy reacted with a protective shield amounting to 30 billion euros, which made sure that credit insurance companies continued to cover all payment defaults and has helped to keep supply chains in Germany and worldwide intact. If this protective shield expires as planned at the end of the year, the credit insurance companies will be forced to protect themselves by becoming more active and cutting or cancelling existing limits – whenever the risk situation and the creditworthiness evaluation of the companies in question justify this measure. Ultimately, the credit insurance companies are liable for the selected insurance cover with their own assets.

Analysis at the press of a button

Credit managers have the task (once again) of reassessing the changing credit risk situation. To evaluate the overall situation they need to know and understand their portfolio. A detailed portfolio analysis provides, for example, an insight into the distribution of customers across the rating classes or displays how many, and which, customers are covered by credit insurance lines and in which amount. Analyses should be available at the press of a button because they provide the credit manager with a very important basis for decisions.

Monitoring of credit risks

A further, very helpful tool in credit management is an early warning system. It provides information when payment delays or defaults threaten, independently from, and ideally before, the reduction of credit limits by the credit insurance company. With the integrated monitoring, abnormalities are detected at an early stage and "notified".

Exact company ratings

It is immensely important to analyse and estimate the creditworthiness, business model and expected business development of one's customers as accurately as possible. For this purpose, numerous sources of data are available that can be used to calculate a rating and can be aggregated in a meaningful way.

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About the Author
Tobias Schwerdtfeger

The studied business data processing specialist is responsible for the business unit Industry & Trade and the development of the software CAM Industry & Trade.

Head of Industry & Trade, SCHUMANN

Schwerdtfeger Tobias