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Trade Credit Insurance
Trade Credit Insurance also known as Credit insurance is a risk management tool that covers the payment risk resulting from the delivery of goods or services.
What IsTrade Credit Insurance ?
Under this policy credit insurer usually covers a portfolio of buyers and pays
an agreed percentage of an invoice or receivable that remains unpaid as a
result of insolvency, bankruptcy or protracted default. For e.g. An Indian toy
manufacturer sells toys on credit to International Clients.
It seeks protection against payment delays and non-payment by its buyers.
A “Whole turnover” trade credit insurance policy, which covers all of the toy
manufacturer’s buyers, the “good, the bad”, is the solution.In exchange for a premium, which is based on the annual turnover and credit
risk of its buyers, the toy manufacturer receives protection up to an agreed
percentage of any losses incurred against late payment or the failure to pay
by its buyers.
What’s Covered?
The policy has been designed to cover insured against the commercial risks of their buyer’s default. Under this policy we will cover the portfolio of buyers and pay an agreed percentage of an invoice or receivable that remains unpaid as a result of covered causes of loss. The causes of loss covered under this policy are:
Insolvency
Protect your business against the risk of non-payment if a buyer becomes insolvent.
Protracted Default
When buyer fails to pay the receivable within a pre- defined period calculated from the due date of payment of the receivable.
Political Risks
In case of exports cover, the Insured also has an option to cover Political Risks which covers non- payment due to - Moratorium,War,Import/ Export Restriction,Natural Disaster,License Cancellation
What’s not covered?
The policy has been designed to cover insured against the commercial risks of their buyer’s default. Under this policy we will cover the portfolio of buyers and pay an agreed percentage of an invoice or receivable that remains unpaid as a result of covered causes of loss. The causes of loss covered under this policy are:
- Radioactive Contamination.
- Costs incurred due to disputes with buyers leading to withheld payments.
- Any penalties or damages buyer entitled to pay.
- Any interest accruing after the original due date of payment.
- Banking cost, unless contractually agreed to be part of the amount owing from the buyer.
- Buyers under direct or indirect control.
- Sales contract made with the private individuals.
- Amount owed by State or governmental department, institution or organization which cannot be declared insolvent.
Benefits of Trade Credit Insurance
- Protects the company’s P&L and Balance Sheet against bad debt
- Potentially reduce and quantify bad debt provisions
- Better borrowing and financing options
- Increase profitability
- Grow sales with confidence
- Prevent losses before they occur
- Maintain cash flow, profitability and protect budgets and business plans
- Information, screening of clients.
- Improve credit decisions & Protects investors and stakeholders
