Credit insurance vs. collection agency: What is the best choice for entrepreneurs?

Almost all companies will sooner or later deal with clients who do not pay on time. This can have a significant impact on liquidity and business operations in general. To limit the risk of non-payment, you can choose between credit insurance or a collection agency. But what is the exact difference, and which option is better for your company? In this blog, we explain it.

What is credit insurance?

Credit insurance protects you against the risk that clients do not pay their invoices. You pay a monthly premium to the insurer, and if a client goes bankrupt or refuses to pay, you receive compensation from the insurer. This sounds like a safe solution, but there are also a number of disadvantages.

Advantages of credit insurance

• You get (part of) your money back if a client does not pay.
• It gives you security for large orders or long payment terms.
• You can often receive credit information about clients via the insurer.

Disadvantages of credit insurance

• You pay a premium even if there are no payment problems.
• Often, not the full invoice is reimbursed, but only a percentage.
• The insurer determines whether a client is insured and can exclude risks.
• You must have clients regularly checked by the insurer.

What does a collection agency do?

A collection agency helps entrepreneurs get outstanding invoices paid after all. This happens via formal notices, telephone contact, and legal steps if necessary. A collection agency is only engaged once the payment term has expired.

Advantages of a collection agency

• There are often no costs if nothing is collected (No Cure, No Pay).
• The collection costs must be paid by the client.
• You decide for yourself which invoices are transferred.
• Collection agencies work quickly and specifically, without the intervention of an insurer.
• The client relationship can be maintained through a client-friendly approach.

Disadvantages of a collection agency

• There is no guarantee that the invoice will be paid. For instance, at incasso.nl, about 90% of invoices are resolved without the intervention of a judge.
• If legal steps are necessary, this may entail additional costs.

What is the biggest difference?

The most important difference between credit insurance and a collection agency is the way they work. Credit insurance prevents risk by reimbursing damages but is a continuous expense. A collection agency tackles problems as soon as they arise and often charges costs only upon success.

Why a collection agency is often the better choice

Many SME entrepreneurs prefer a collection agency over credit insurance, and not without reason:

• No fixed premiums: you only pay when there is a result.
• More control: you decide for yourself when to take action.
• Faster payment: a collection agency can approach clients directly and exert pressure.
• Personal approach: customized solutions that fit your clients and company.

Grip on debtors with incasso.nl

Do you want to get your outstanding invoices paid faster without unnecessary costs? Via the incasso.nl app, you can quickly and easily start a collection trajectory. Because the costs must be paid by your client, incasso.nl is often completely free for you. Create an account immediately and get advice from one of our collection specialists.