Here’s a breakdown of the key factors credit insurers analyze when evaluating the risk of your buyers:

1. Financial Health:

• Credit Reports and Scores: The insurer obtains credit reports from credit bureaus to assess the buyer’s payment history, debt levels, and overall credit score.
• Financial Statements: Analysis of balance sheets, income statements, and cash flow statements reveals the company’s profitability, liquidity, and debt management.
• Financial Ratios: Insurers look at key ratios like debt-to-equity, current ratio, and profitability indicators to measure the buyer’s financial strength.

1. Industry and Competitive Landscape:

• Industry Trends: The health of the buyer’s industry (cyclical, declining, etc.) and overall economic conditions significantly impact their ability to pay.
• Market Position: The buyer’s market share, competitive pressures, and vulnerability to disruption are considered.
• Supply Chain Risks: The insurer assesses the reliability of the buyer’s supply chain and the potential impact of disruptions on their operations.

1. Payment History:

• Past Payment Behavior: A history of late payments or defaults is a major red flag.
• Your Experience: Your own records of the buyer’s payment patterns and any past credit issues become relevant.
• Trade References: The insurer might contact the buyer’s suppliers or other creditors for insights into payment reliability.

1. Country Risk (International Trade):

• Political Stability: Government actions, civil unrest, and policy changes can hinder a buyer’s ability to pay.
• Economic Conditions: Currency fluctuations, economic downturns, and foreign exchange restrictions are considered.
• Legal Framework: Laws regarding bankruptcy, insolvency, and contract enforcement have an impact.

1. Other Factors:

• Company Size and Age: Smaller and newer companies might be perceived as riskier.
• Management Experience: The quality and track record of the buyer’s management team are taken into account.
• Litigation or Disputes: Any ongoing legal issues could signal financial distress.

Important Notes:

• Risk is dynamic: Insurers continually monitor these factors, adjusting buyer risk assessments and coverage limits accordingly.
• Data Sources: Insurers utilize a variety of information sources, including credit reports, financial databases, industry reports, and even news articles.