Trade Credit Insurance

Trade Credit Insurance is an insurance policy that protects sellers when they sell their goods or services on credit to their buyers.  The default of payment by the buyer to the seller is covered under this policy. .

Under the policy, the credit insurer usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that is not paid due to insolvency or bankruptcy or protracted default.

Those who are eligible to buy Trade Credit Insurance Policy include – any company engaged in the sale of goods and services on credit terms and exposed to the risk of non-payment; including large, medium, and small commercial enterprises; exporters, domestic suppliers of goods and services.

What’s covered

The insurance policy covers any loss caused by:

  • It protects the sellers against the risk of non-payment by the buyers because of delayed payments or insolvency.
  • Protracted default – It protects the business if it is unable to pay the receivable within a pre-defined period, and that’s calculated from the due date of payment of the receivable.
  • Natural disasters like earthquakes, floods, etc.
  • Political risks which cover non-payment due to Moratorium; or Transfer Restriction/Inconvertibility; or War; or Import/Export Restriction; or Natural Disasters; or License Cancellation.
  • Any measure taken by the country where the buyer is located, preventing payment of a transaction.

What’s not covered

The Insurance Policy does not cover any loss or damage caused by:

  • Disputes with the buyer result in withholding of partial or full payment.
  • Cost incurred in resolving disputes between the seller and the buyer.
  • Trade Disputes.
  • Non-Acceptance of goods.
  • Devaluation or depreciation of currencies.
  • Radioactive Contamination.
  • Commercial credit related to interest or penalty for repayment.
  • Any penalties or damage that the buyer is entitled to pay.
  • Any interest accruing after the original due date of payment.
  • Any kind of banking cost unless contractually agreed to be part of the amount owing from the buyer.
  • Any transaction with the Government or with private individuals.

Apart from the above, the policy does not cover any loss covered through the Letter Of Credit or Bank Guarantees or cash transactions.

Why Buy The Policy?

Businesses and traders today are confronted with an increasing number of complex needs in terms of trade receivables management. This is where Trade Credit Insurance:

  • Helps companies to expand their business without hassles.
  • Protects companies against customer defaults. This is ensured by covering the sales of the company to its buyers on credit against the risk of loss resulting from the insolvency of the customers.
  • Protects the company’s profits, cash flows, sales growth, balance sheet, and customer base.
  • Helps the growth of company sales by allowing the secure development of new buyers, new markets, and the credit extended to a buyer.

Policy Benefits

The benefits of the insurance policy include:

  • Protection of the company’s P&L and Balance Sheet against bad debts.
  • Protection of Budgets and Business Plans.
  • Protection of investors and stakeholders.
  • Facilitation of better borrowing and financing options.
  • Prevention of losses before they take place.
  • Maintenance of cash flow
  • Increasing productivity
  • Improvement in taking informed decisions on credit sales.
  • Growth of sales with confidence.