TRADE CREDIT INSURANCE
What All Trade Credit Insurance Includes?
Trade Credit Insurance covers risks of both non-payment and delays in payment of debts. Both these issues are covered under the following eventualities.
Protracted defaults- If the buyer fails to pay the receivables within a pre-defined time slot from the due date of the receivable
Insolvency- Protection against non-payment if the buyer becomes insolvent
Political risks- If there is a loss of payment during exports due to political unrest, the same is covered under Trade Credit Insurance. Political issues covered under this plan are:-
War
Moratorium
Natural disasters
License cancellation
Export/ import restriction
Transfer restrictions/convertibility
The insurance plan can be extended to cover the following situations :
Claim payment directly to the lending institution of the policyholder
Pre-shipment coverage based on each shipment
Preference claims which are associated with bankruptcy
How does Trade Credit Insurance Function?
The policy seeker checks out the Trade Credit Insurance quotes from different websites of the insurance companies
After choosing the policy, the required documents need to be submitted to the insurance company
The premium is calculated and the policy commences with the payment of the 1st premium
When any loss of debt or delay in payment occurs, the claimant intimates the insurance company
Upon receiving the required claim documents and an investigator from the insurer verifies the risk and accordingly pays the compensation amount
If the claim is not liable for compensation, it will be rejected and the same will be communicated to the insured
If the insured is not happy with the solution, he/ she can raise a dispute in a court of law.
Eligibility Criteria For Trade Credit Insurance
Any company that sells goods and services on credit terms and is exposed to the risk of non-payment
Large, medium, and small commercial enterprises
Domestic suppliers and exporters of goods and services
How Is Trade Credit Insurance Claim Processed?
The policyholder immediately intimates the insured event to the insurance company by submitting the required documents
An investigator from the insurance company investigates the issue
If the claim is as per the policy, the compensation is paid to the policyholder
If the claim is found to be false or not as per the contract, the claim will be canceled
Document Required For File Insurance Claim
The insured needs to provide the following documents to ensure a timely claim settlement process,
Duly filled claim form
Stamped and valid evidence of loss
How Long Does It Take To Pay Out A Claim?
Insurance companies usually take 120 days to settle a claim. If there is any legal dispute related to the claim, it might take more time to get the payout.
Cases Where You Can’t Claim Trade Credit Insurance
Trade Credit Insurance does not cover the delay in payment or loss of debts due to the following factors:
Trade disputes
Reverse factoring policies
Risk of currency fluctuations
If it is a single buyer/ single shipment
Commercial credit related to interest or penalty for repayment
If the loss is covered through a Letter of Credit or Bank Guarantees
Renewal Process
If the policyholder wishes to renew his or her policy, S/he can do so before the due date to prevent a break in the policy.
Insurance Companies Providing Trade Credit Insurance
Some of the insurance companies that provide this type of insurance are as follows:
SBI General
ICICI LOMBARD GENERAL INSURANCE
TATA AIG
HDFC Ergo General Insurance
Atradius India
Important Aspects
Some critical aspects of Trade Credit Insurance are:
Premium for this insurance policy can be paid on a flat or adjusted basis
The whole turnover of the company should be taken into consideration by the insurance company before approving the policy
The financial services are excluded from the Trade Credit Insurance
Advantages Of Buying A Trade Credit Insurance
Protects the company’s profit and loss, and balance sheet against bad debt
Insured will get better borrowing and financing options that further increase profitability
Prevents losses before they occur
Maintains cash flow and thus protects budget and business plan
Protects investors and stakeholders