Trade Credit Insurance

Trade credit insurance protects manufacturers, traders and service providers against losses from non-payment of a commercial trade debt. If a buyer does not pay (often due to bankruptcy or insolvency) or pays very late, the trade credit insurance policy will pay out a percentage of the outstanding debt
"Trade credit insurance policies are flexible and allow the policyholder to cover the entire portfolio or just the key accounts against corporate insolvency, bankruptcy and bad debts. The most common type of cover is so-called Whole Turnover Cover, which covers all buyers of the policyholder."

Benefits

• Improved Sales: Businesses with trade credit insurance can boost their sales by offering customers and prospects more favourable credit terms while eliminating the need for costly letters of credit.
• Access to a new market: Trade credit insurers offer protection against unique export risks by providing businesses with the market knowledge needed to make informed decisions in foreign markets.
• Insolvency protection: In regards to sales made on credit terms, trade credit insurance protects organizations from the risk of a customer default or insolvency.
• Cash flow relief: Trade credit insurance provides cash flow relief when a business' customers become insolvent or do not pay their bills on time. Losses can be indemnified, allowing the business to maintain its cash flow.
• Reduce concentration risk: Trade credit insurance mitigates risks for businesses whose bottom line is dependent on a select number of customers.
• Accounts receivable support: Trade credit insurers offer businesses access to professional trade-credit analysts who can share best practices with a company's credit department
• Collection services: Trade credit insurance provides access to cost-effective collection services.
• Facilitate bank financing: Banks will typically offer more favourable lending terms to businesses that insure their accounts receivable.
• Portfolio monitoring: Trade credit insurance also provides access to professional portfolio monitors who track customers' ability to meet their financial obligations to the insured business.

Coverages

• Protracted Default
  • The failure of a buyer to pay in whole or part of debt owing under the contract
  • Waiting period -- 6 months from original due date.
• Political Risk
  • Buyer unable to pay because of political event, such as currency inconvertibility, war, expropriation, embargo, etc.
  • Political Risks can be covered for buyers outside India
• Insolvency
  • A receiver or judicial manager has been appointed over all the assets and undertakings of the Buyer.
  • The liquidation either compulsory or voluntary (not for the reconstruction or amalgamation).
  • An assignment is made by the buyer for the benefit of or composition with its creditors generally.
  • In the opinion of the insurer, such relevant condition exist which is substantially equivalent in effect to any of the foregoing conditions.

Exclusions

• Trade Disputes.

• Advance sales or sale secured by any other instrument.

• Sales made to private individual or with an associate company.

• This contract does not cover any loss:

  • Which is in excess of the credit limit
  • A buyer is already declared insolvent
  • Deliveries made to a buyer post cease shipment date
  • Where insured has not compiled any terms, which may be attached to the credit limit
  • Deliveries, shipments or performance of services made after the insurer has refused or cancelled a credit limit
  • Arising from failure, by your anyone acting on your behalf, to fulfil your obligations under any clause or condition of the sales contract

Claim Process

In the event of loss, the following are immediate actions to be taken
To intimate to the insurer the occurrence of loss, submit a full statement in writing of the claim, provide the nature and extent of loss and extent of the financial loss.
Any intentional delay in intimation of claim to the insurers may jeopardize the claim, as the insurer may express an inability in accepting liability of the loss.

• To take all steps to reduce and minimize the extent of loss/damage and liability.
• To extend full co-operation to the insurer for prompt and proper assessment of the claim
• Provide all such records and proof as may be required by the Insurers for arriving at the extent of loss and the liability under the policy.