Credit Insurance in France: How It Works?

Credit insurance is often sold as “protection against bad debt,” but its real value is broader—and more strategic. After reviewing an insured company’s customer portfolio, the credit insurer sets approved credit limits (maximum outstanding exposure) for each buyer and commits to indemnify the insured if a covered customer does not pay due to insolvency or prolonged default. The insured company is never protected for 100% of the loss: deductibles, co-insurance, exclusions, and procedural requirements ensure the insured retains a meaningful share of risk.

This structure matters because it explains a point many businesses learn too late: credit insurance reduces loss severity; it does not prevent non-payment. A buyer can still dispute, delay, or simply stop paying. And even when a claim is valid, indemnification runs on the insurer’s timeline—often months—while your working capital bleeds today.

1. The “Three-in-One” Model: Coverage, Monitoring, and Litigation Support

Modern credit insurance in France typically bundles three services.

Coverage against non-payment. The insurer indemnifies a portion of the insured loss when a covered customer becomes insolvent or definitively fails to pay under the policy’s definition of “default.” Market practice varies: some policies tie “insolvency” strictly to formal proceedings (safeguard proceedings, judicial reorganization, or liquidation), while others also cover non-contested debts after a contractual waiting period.

Ongoing monitoring of your buyers. The insurer continuously reassesses risk. Coverage can be reduced or withdrawn based on new financial information. This monitoring function is not a courtesy; it is central to the business model, because insurers manage portfolios, not single invoices.

French case law also shows that insurers must exercise caution when withdrawing support in ways that can harm the buyer’s reputation or disrupt commercial relationships. Courts have framed this as a duty to act prudently, illustrated by CA Paris, 28 September 1990 (25th chamber, section B), and in a more concrete liability scenario where an insurer’s erroneous escalation caused commercial harm and damages were awarded: CA Orléans, 11 September 1998.

Litigation-oriented recovery support. Many credit insurers will manage judicial recovery for unpaid commercial debts. Practically, this can include instructing counsel, filing claims in collective proceedings, and pursuing litigation where appropriate. But insurers run recovery through the lens of claim handling and portfolio economics—meaning speed and strategy may not align with your cash-flow priorities.

2. Who Should Use Credit Insurance—and Who Should Not Rely on It Alone

Credit insurance is common among mid-sized and large companies (often above €5 million in annual turnover), but it can also be rational for smaller firms with high customer turnover, many small buyers, or a handful of large exposures that could destabilize the business if one fails.

Where companies misjudge credit insurance is in treating it as a replacement for internal credit control and decisive collection. In reality, the policy functions best when your business already has disciplined invoicing, clear payment terms, and the ability to escalate quickly when a buyer delays.

It is also essential not to confuse credit insurance with factoring. Factoring is a transfer of receivables (a sale/assignment structure), whereas credit insurance generally leaves the receivable with the seller while providing risk cover and recovery services. Those are fundamentally different mechanics—and they lead to different operational outcomes when payment fails.

3. Pricing, Minimum Premiums, and “Excess-of-Loss” Policies: The Hidden Economics

Premiums are typically calculated as a percentage of insurable turnover, but real pricing varies by sector, buyer profile, claims history, and coverage structure. Market references frequently quoted in France indicate that the cost may range from 0.1% to 2% of insurable turnover for many businesses, with small firms sometimes offered flat pricing.

Insurers often impose a minimum annual premium, and some contracts provide that the annual minimum is due in full even if the policy is terminated mid-year—an approach upheld in older but still instructive case law: CA Amiens, 11 July 1983 (3rd civil chamber).

Alongside traditional policies, “excess-of-loss” structures exist. These products give the insured more freedom to set buyer exposure internally, but impose a significant retention: the insured absorbs losses up to a high threshold, and the insurer only covers losses above that level. This is generally reserved for companies with mature credit management functions and strong internal monitoring.

The takeaway is simple: credit insurance is a financial instrument with contractual friction. It should be chosen deliberately, negotiated carefully, and integrated into a broader receivables strategy rather than purchased as a psychological comfort blanket.

4. Credit Limits, Withdrawals, and Cash-on-Delivery Clauses: What French Courts Actually Accept

When insurers classify certain buyers as “named accounts” (high exposure), the insured often must request approval before extending credit. Approval can be lowered or withdrawn. From a risk perspective, that is rational; from an operational perspective, it can be brutal.

When coverage is withdrawn, many businesses implement cash-on-delivery or payment-before-shipment requirements to protect themselves. French courts have accepted the effectiveness of such clauses when properly drafted and applied, including in a scenario where a supplier stopped production after the insurer withdrew cover shortly before delivery: CA Douai, 8 April 2021 (No. 19/05415), appeal dismissed by Cass. com., 18 January 2023 (No. 21-18260).

A clause like this does not eliminate disputes, but it changes the power dynamic. It clarifies that the supplier is not extending unsecured credit when the insurer will not stand behind it.

Here is a clean English version (adapted for use in terms and conditions while preserving the legal logic):

Used correctly, this clause becomes a practical tool: it allows the supplier to shift from open account terms to secured payment without improvisation or ambiguity.

5. Indemnification, VAT Recovery, and Subrogation: Where the Legal Details Decide Outcomes

Indemnification timing depends on the policy and on whether the debtor enters formal proceedings. Many policies provide faster payment once the creditor’s claim is admitted in insolvency proceedings; outside formal insolvency, a waiting period is common (often several months), especially where the insurer requires proof that the debt is non-contested and recovery attempts have failed.

VAT recovery becomes relevant once the receivable is definitively irrecoverable. French tax doctrine recognizes that indemnification and documented failed recovery steps can support the characterization of irrecoverability for VAT purposes (notably under BOFiP guidance referenced in practice as BOFiP-WA-DED-40-10-20). The key point for finance teams: indemnification does not automatically change the VAT analysis; what matters is the legal and factual demonstration that the receivable is definitively unrecoverable.

Then comes the core legal mechanism that many businesses overlook: subrogation. Once the insurer pays, it is subrogated to the insured’s rights against the debtor and can take control of recovery according to contract terms. And in collective proceedings, French case law makes the procedural rule explicit: only the subrogated credit insurer that paid before the opening of the debtor’s proceedings may file the proof of claim, unless it has granted a special mandate to the insured—Cass. com., 1 December 2009 (No. 08-20656).

Subrogation is not inherently bad; it is the legal reason insurers can keep premiums rational. But it does mean that if you delay, fail to document properly, or let the situation drift into collective proceedings, you may lose strategic control over recovery timing and tactics.