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How to insure receivables for several companies in one group? Individually and synergistically. Always at a profit for the client

Are the conditions under which our companies are insured good? Is it better to insure the business risk of the whole group or to have trade credit insurance for each company separately? These are the key questions we have helped CONSILLIUM, a private investment group with investments in a number of companies including BIKEFUN International, LEVELSPORTKONCEPT and KÄSTLE, to find answers. Each of these companies has a slightly different business model and receivables structure. All of these companies have growth ambitions supported by good business results. However, to ensure secure growth, they need to have a well-set up trade credit insurance system.

“The cooperation with ARFiN has reduced our costs and improved our insurance coverage,” summarises Tomáš Klápště, Managing Director of Tomáš Němec’s Consillium investment group.

We had our first contact with Consillium at the beginning of 2021. We presented our experience to the client, our specific know-how focused on the area of credit insurance and we also talked about the possibilities of dealing with non-standard requirements arising from the nature of doing business in the sports industry. ARFiN’s advantage is the experience of the team members from management positions in various insurance companies, as well as their knowledge of credit insurance solutions for many large clients. The client’s objectives and our support priorities emerged from the initial consultations.

What problems did we help our client to solve at each company in the group?

Together we decided that it would be more appropriate to proceed in steps. The priority solution required a comprehensive renewal of the insurance conditions of one of the companies in the portfolio. Only in the next steps did we focus on other companies with the potential to improve existing insurance policies. At the same time, however, we did not want to lose the advantage of the synergistic effect of the size of the group in order to achieve better terms.

It was clear that renewal of credit insurance would be a complex process requiring a lot of time and knowledge of the current market opportunities with all insurers, given the track record. It was difficult to negotiate credit insurance on our own and make an informed decision on which route to take. We knew that we were looking for someone with years of experience and a working knowledge of different situations and combinations. ARFiN met our expectations from the beginning,” says Petr Sazovský, CFO of BIKEFUN.

How do we proceed when working with a client?

Case One: BIKEFUN. Communication with the insurance company as a basis for a good insurance contract

BIKEFUN International is a manufacturer of various types of bicycles. It offers mountain bikes, trekking bikes, cross bikes, road bikes and the increasingly popular electric bikes. And it’s also a company where we faced together a difficult credit insurance situation some time ago… But that’s just the kind of  we like! The problem was the price of the insurance, which was affected by the claims history of previous years, and the extent of the cover, which was only about 30% of the amounts requested. From our perspective, however, the existing credit insurer was proceeding logically – the client’s requirements were relatively above standard given the seasonality, turnover and customer structure. The period of the Covid pandemic and increased risks in the economy also played a role at the time.

A detailed audit of the current insurance conditions and the company’s needs and priorities has crystallized a clear idea of what we want to achieve in the upcoming tender. We also prepared detailed documents and all positive arguments for negotiations with insurance companies, which proved to be crucial during the negotiations. The price of insurance reflects the pricing of risks – transparent communication and the use of all available information about the client’s business and financial situation can increase the comfort of insurers and therefore positively influence the final price. We were also able to turn the current economic situation in our favour, with new insurance business starting to stagnate thanks to Covid, and credit insurers being more accommodating  than in previous months.

Towards better insurance

01/2021: client acquisition and audit of existing contract
02/2021: preparatory phase
multi-round tender to contract signing and activation of limits

As expected, the competing bids that emerged from the tender came out against the existing conditions and the insurer. However, thanks to the consistency and transparency of the tender procedure, the insurance company did not underestimate the situation and positioned itself in such a way that it reached the next round of tender assessment. In the end, two insurers remained in the game and it was up to the client to decide. The client preferred to continue working with the existing insurer – a decision that was also influenced by good claims handling experience in the past. The outcome of the tender was very positive for the client. In addition to the financial savings, it was mainly an improvement in a number of parameters, and in particular an approximate doubling of the insurance limits.

Key improvements for the client:

“We were hoping for a good result and an improvement on existing conditions. But the reality managed to exceed our expectations even more,” Matúš Demian, Financial Manager of BIKEFUN, points out the success of the tender, which is the result of the client’s precise approach to our recommendations and the combination of experience, serious negotiations and the use of the current market situation.

Case Two: LEVELSPORTKONCEPT. Credit insurance took into account the specific situation of the company

Next company, different profile, different needs. Levelsportkoncept is a company operating in the Czech Republic and Slovakia in the field of import and wholesale of sporting goods of world brands with a relatively high number of customers. Our audit has shown that the existing insurance under the existing general broker does not provide the maximum achievable parameters. In addition, we saw an increased risk that the client would find it difficult to meet the terms of the insurance contract due to the way of trading and the set relationships with customers.

New insurance conditions in 2 months!

10/2021: client acquisition and audit of existing contract
tender from questionnaires to contract signing and activation of insurance limits Also in this case of the sports equipment dealer, the new tender also brought about a desirable improvement – it succeeded in negotiating a suitable policy setting, especially in the area of un-named cover (based on clients own credit assessment) and the total range of standard cover. The overall cost of the policy was also lower than the previous solution. Importantly, the renegotiated policy also takes into account the company’s internal procedures, including debt recovery measures. We ensured a smooth transition of the insurance under the new insurer, which best met the needs of the client.

Case Three: KÄSTLE. Significantly better insurance coverage and credit insurance also overseas

Kästle is a world-renowned manufacturer of skis and ski equipment based in Austria. This company has also protected itself against business risks before the start of our cooperation. But the original policy had a number of drawbacks, including the fact that it insufficiently covered the largest customers. We invited both Austrian and Czech credit insurers to participate in a tender in which we sought to improve the terms. It had several rounds and involved a series of ongoing negotiations with both insurers and the client.

How has time gone with Kästle’s new credit insurance?

04/2022: client acquisition and audit
05-06/2022: tender
07/2022: activation of insurance limits

The winning offer, proposed by the Czech insurance company, is not only more advantageous for the Austrian client, but also covers the risks of its overseas branch. The new contract is also significantly better in terms of coverage. The sum  of the credit limits has increased several times while reducing the insurance rate and maintaining costs. Again, many other insurance parameters have been fine-tuned.

“Initially, we were a little skeptical about possible insurance enhancements due to our specific needs that the seasonal business has. But it turned out that we can protect our business on significantly better terms than before. Working with ARFiN has been a huge time saver for us and has given us much more insight into our insurance options,” says Susanne Weber, Credit Manager at Kästle.

Summary: So how to best handle credit insurance for a group of companies?

Trade credit insurance is a complex product, even more so if you own a group of companies. The standard solution does not fit all clients. Insurance companies have their preferred industries and weaknesses and strengths in terms and conditions. Moreover, everything evolves and changes over time.

Anyone can probably think of synergies and savings of scale in the case of a group of companies, but the extent of insurance coverage is also crucial. In the case of a portfolio of sporting goods companies, it proved to be a more advantageous solution to approach each policy individually – the needs of the individual companies in the group are so specific that no single insurer was able to offer the most advantageous cover for each company at the same time.  There are companies that have not yet worked with credit insurance. In these cases, we can help analyze the impact of using insurance on both the credit management process and results, potential losses from receivables, and the overall financial performance. Although trade credit insurance entails an insurance premium expense, the use of related services can also save significant amounts elsewhere or even improve your business balance sheet. After all, the primary goal of credit insurance is to secure business – using this tool often allows companies to establish new partnerships that they would otherwise not have ventured into.