What is a Del Credere Agency?
Del credere originated in Italy during the Middle Ages. The word “del credere” comes from the Italian and means of belief or trust. A del credere agency is a business that agrees to sell a producer’s goods and, in return for a fee, guarantees that the buyer will pay for them. Basically, a del credere agency is a type of broker, mediator, or middleman, between a vendor and a vendee. The agency takes a “del credere commission,” or a fee, from the producer for ensuring that the good is sold and paid in full. Consequently, if the buyer defaults on payments, the agency assumes financial responsibility. This promise that the buyer will pay, or the agent will pay the amount the buyer failed to pay, makes the agent a “surety.”
An example might be the best way to understand the concept. If a glass blower makes a vase, he or she might contact a del credere agency to sell it. The glass blower would then pay a fee to the agency, also called a del credere commission, to ensure that, if the vase sells, the glass blower will be paid in full. If the vase sells and the buyer successfully pays the total amount owed, the del credere agency profits from the fee the original producer pays. If the buyer defaults on payments, the del credere agency has to pay the outstanding amount to the glass blower.
To ensure that the del credere agency does not lose money through defaulted payments, it will generally only sell to solvent vendees, or buyers that are capable of making payment. A prediction of solvency depends on good credit history and debt-equity ratios. A good credit history implies that the individual or company has been extended credit and has been consistently paid back on time. A high debt-equity ratio usually means that an individual or company has paid for its financial growth with debt incurring processes, such as through the buying and selling of stocks or loans. This makes their earnings more unstable and therefore a less attractive buyer to del credere agencies.
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