Supplier Invoice Insurance
Supplier Invoice Insurance is a product used in cooperation with a bank. Supplier Invoice Insurance is designed to facilitate financing by extending the credit period on invoices from your suppliers.
The bank pays or finances your supplier invoices, and collects payment from you at a later date. The insurance can be utilized as a security against specific supplier invoices, or as part of a Supply Chain program.
The insurance starts when the bank pays the supplier at due date. A loan will be created in the bank at the same amount where the bank's client (your company) is given an extended credit period. The bank insures its risk through a credit insurance agreement with GIEK Kredittforsikring.
The insurance limit will depend on the financial situation of your company. Following an application, we will credit evaluate the customer.
Supplier invoice insurance provides financing capacity, since the product does not encumber the assets in the balance sheet. The product is therefore well suited when the bank has already pledged the assets on the balance sheet, and it is not desirable to pledge more assets.
Supply Chain Financing / Reverse Factoring focuses on how the entire value chain can be financed as best as possible, by turning the credit exposure towards the most solid party in the customer- supplier relationship.
The bank purchases the receivables that the supplier has against the customer, and gives the customer an extended payment deadline.
GIEK Kredittforsikring insures the bank's exposure to its customers. For the bank, the insurance means that less capital must be kept / more risk ability / higher credit limits can be granted.
Benefits for suppliers in a SCF program:
- Faster settlement of claims gives a decline DSO (Days Sales Outstanding = better liquidity)
- Settlement from bank instead of customer (better creditworthiness on accounts receivable)
- Cash flow from receivables sales can be used to reduce bank debt, and decrease the balance sheet, which will have a beneficial effect on key figures such as equity ratio, ROCE (return non capital employed)
- The bank offers cheaper financing than the supplier has internally.
Customer benefits in a SCF program:
- Extended DPO (Days Payables Outstanding = better liquidity)
- Given that the supplier saves on its funding, customers can often negotiate price reductions
- Sine it is the bank (and the insurance company) that take the risk with increased credit time, this has a positive effect on the relationship between subcontractor and customer