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. 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.
- 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.
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:
- Transfer Restriction / Inconvertibility
- Import/ Export Restriction
- Natural Disaster
- License Cancellation
- Radioactive Contamination
- Disputes with the buyer resulting withholding of partial or full payment.
- Cost incurred in resolving disputes between the insured and the buyer.
- 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
- 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.