Trade Credit Insurance
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Trade Credit Insurance Features
Account Receivable Protection
Protect
a large and vital business asset. This policy pays you if a
customer defaults on payment. In this way it ensures a
steady cash flow and mitigates an important business risk.
Market Risk Cover
Trade credit
insurance covers default for several reasons ranging from
political situations, currency demonetization, license
cancellation or exchange rates fluctuations. Defaults by
public sector units can also be insured.
Bankruptcy Cover
Trade Credit
Insurance protects defaults even if your customer goes
bankrupt. The reason for bankruptcy is not relevant. This is
particularly relevant for a fragmented customer base that is
exposed to economic cycles.
Low Bad Debt
By taking trade credit
insurance policy, you will cover all the risk of default by
your customers. This will ultimately keep your bad debt
level low, which further helps grow the business. Remain
focus on business’s core activities and don’t worry about
payment defaults.
Why Claims Get Rejected?
Omission of important details
If you leave out important information in your proposal it can result in a claim rejection. Important information could be the fact that you have a history of payment defaults, a debtor has threatened non-payment or that you have debtors that are not declared in the proposal.
Late filing of claim
A common reason for claim rejection is late filing of a claim after the maximum reporting time provided for in the insurance contract. The reason for claim rejection in cases of late filing is that late filing significantly reduces the insurer’s ability to recover the funds from your creditor. Insurers price trade credit with the expectation that they will use legal and other recourse to recover at least a part of the default payment.
Risks not covered
Many claim gets rejected because they lie outside the policy terms. Terms include the definition of goods, territory and payment conditions. Certain kinds of debtors such as government departments may be excluded in the insurance.
FAQs
Trade credit insurance protects your business against both commercial and political risks that are beyond your control. It improves the quality of your business and helps you grow profitably, minimizing the risk of sudden or unexpected customer insolvency. Credit insurance gives you the confidence to extend credit to new customers and also improves access to funding, often at more competitive rates.
You can insure debtors selectively. However, the insurer must have a clear view on all your debtors and must be clear that you are making a selection. They will want to know your rationale for selection of a few debtors. Quite often the premium rates for selective and complete cover are similar.
The credit risk that is insured has to have a direct link with an underlying trade transaction which is the delivery of goods or services. If no such direct link exists, the outstanding amount is not insurable under a trade credit insurance policy. For example you may not have a trade credit insurance cover late tax refunds by the government.
A trade credit insurance policy is a conditional insurance contract between two parties that cannot be traded. A financial guarantee is unconditional, usually on-demand, and transferable.
A trade credit insured risk is always directly related to an underlying trade transaction, which is either the delivery of goods or of services. The correct fulfillment of this trade transaction is essential for trade credit cover to exist.
A trade credit insured risk is always directly related to an underlying trade transaction, which is either the delivery of goods or of services. The correct fulfillment of this trade transaction is essential for trade credit cover to exist.
Any company that sells goods and services on credit terms (i.e., extends credit to customers rather than requiring payment up front) and is exposed to the risk of non-payment.
The premium is calculated as a rate percentage on the amount of insured’s turnover i.e. estimated credit sales for the financial year. The policy commences only after the insured or the policy holder applies for credit limit on each buyer.
