Trade credit insurance protects manufacturers, traders, and service providers against losses caused by the non-payment of commercial trade debts. If a buyer fails to pay, often due to bankruptcy or insolvency, or pays late, the policy will reimburse a percentage of the outstanding debt.

Trade credit insurance policies are flexible, allowing policyholders to cover their entire portfolio or just key accounts against risks like corporate insolvency, bankruptcy, and bad debts. The most common coverage option is Whole Turnover Cover, which protects all buyers of the policyholder.

Benefits

  • Improved Sales: With trade credit insurance, businesses can offer customers more favorable credit terms and eliminate the need for costly letters of credit, helping to boost sales.
  • Access to New Markets: Trade credit insurance helps businesses explore new export markets by providing the necessary market knowledge and protection against unique risks.
  • Insolvency Protection: When sales are made on credit terms, trade credit insurance shields businesses from the risk of customer default or insolvency.
  • Cash Flow Relief: In cases of insolvency or late payments, trade credit insurance offers cash flow relief by indemnifying losses, allowing businesses to maintain financial stability.
  • Reduce Concentration Risk: The policy helps businesses reduce risks related to over-reliance on a small number of customers.
  • Accounts Receivable Support: Trade credit insurers provide access to expert trade credit analysts who can advise on best practices for managing accounts receivable.
  • Collection Services: The policy includes access to cost-effective collection services to recover outstanding debts.
  • Facilitate Bank Financing: Insured businesses are more likely to receive favorable lending terms from banks, as they have protected accounts receivable.
  • Portfolio Monitoring: Trade credit insurance offers access to professional portfolio monitoring services that track the financial health of customers, helping businesses stay informed about their ability to meet financial obligations.



Coverages

  • Protracted Default:
    This refers to the failure of a buyer to pay either part or all of the debt owed under the contract.
    Waiting period: 6 months from the original due date.
  • Political Risk:
    Coverage applies when a buyer is unable to pay due to political events, such as currency inconvertibility, war, expropriation, embargo, etc.
    Political risks can be covered for buyers outside India.
  • Insolvency:
    Coverage applies if a receiver or judicial manager is appointed over all the buyer’s assets and operations, or if the buyer undergoes liquidation (either compulsory or voluntary, not for reconstruction or amalgamation).
    It also covers cases where the buyer assigns their assets for the benefit of creditors or enters into a general composition agreement with creditors.
    The insurer may also consider other conditions equivalent to insolvency.

Exclusions

  • Trade disputes.
  • Advance sales or sales secured by other instruments.
  • Sales made to private individuals or associated companies.
  • Losses that exceed the credit limit.
  • Sales made to a buyer already declared insolvent.
  • Deliveries made to a buyer after the cease shipment date.
  • Instances where the insured has not complied with the terms attached to the credit limit.
  • Deliveries, shipments, or services performed after the insurer has refused or canceled the credit limit.
  • Losses resulting from failure to meet obligations under any clause or condition of the sales contract by the insured or anyone acting on their behalf.

Claim Process

In the event of a loss, the following actions should be taken immediately:

  1. Notify the insurer about the loss and submit a detailed written statement of the claim, including the nature and extent of the loss, as well as the financial impact.
  2. Any deliberate delay in notifying the insurer about the claim may jeopardize the process, as the insurer may refuse to accept liability for the loss.
  3. Take all necessary measures to reduce and minimize the loss, damage, and liability.
  4. Provide full cooperation to the insurer to ensure a prompt and accurate assessment of the claim.
  5. Submit any required records and evidence to the insurer to help determine the extent of the loss and the liability under the policy.