Life and General Insurance

Like any form of insurance, the Trade Credit Insurance is purchased to avoid a large loss that could impair the performance of your company. Despite a company’s best efforts, large or catastrophic losses occur from: -

 

1. One large long-term buyer unexpectedly failing

2. A significant change in the market or economy, where a number of buyers become

 

Distressed and are unable to meet their obligations in time

1. A sudden shift in the political or economic conditions of a buyer’s country (exports)

    The Trade Credit Insurance is a useful tool in improving financial performance and assists in developing more favourable financing arrangements.

• Achieves Financial Objectives

  1. Increases cash flow and profitability

  2. Protects one of your largest assets i.e. accounts receivable.

  3. Improves the quality of financial planning.

     • Improves Financial Performance

       1. Reduces bad debt reserves                                         

       2. Minimizes risk                                                                                

       3. Positively affects growth rate                                  

       4. Improves return on assets                                         

        Enhances Competitiveness

1. Improves customer relationships.         

2. Reduces risks of entering new markets

 

Trade Credit Insurance

Policy Features

1.  Eligibility: -    

• Minimum annual turnover of the insured

  1. Domestic turnover of Rs. 10 crores for domestic risks policy.

  2. Export turnover of Rs. 20 crores for export risks policy.

     • Existence of effective credit management procedures.

     • Credit period not exceeding 180 days.

 

2.  Coverage: -

 

The Policy shall be issued to cover the Whole Turnover (Credit Sales) of the Insured covering all buyers. However the Insurer may exclude certain buyers at his sole discretion based on credit risk.

Declared Insolvency of your buyer.

• The buyer is declared bankrupt.

• He has made a valid assignment/composition/arrangement for the benefit of his creditors.

• A receiver has been appointed

• Order has been made for compulsory winding up.

• An effective resolution has been passed for voluntary winding up.

• An arrangement binding on all creditors has been sanctioned by the court or “equivalent conditions”.

  1. Presumed Insolvency or Protracted Default.

 

Presumed insolvency or protracted default by the approved buyer is the failure of

the approved buyer to pay to the insured, at the end of the waiting period, the

whole or part of the insured debt relating to goods delivered/services provided

and accepted by the approved buyer.

 

1. Political Risks (For Type Exports Only)

Political risk is the risk undertaken on non-payment of the buyer caused by a political act such as war, civil war, sabotage, embargo, and cancellation of import/export contracts and imposition of import/export restrictions.

 

3. Basis of Indemnity: -

• The basis of indemnity will be the invoice value.

• Payment will be the insured percentage of the insured loss, for sales made during the policy period, net of excess and subject to the maximum liability under the policy.

• The maximum indemnity that can be offered is 80% of the receivables of a buyer or 90% of the cost incurred by the seller in the previous year, whichever is lower.

 

4.  Risk Monitoring: -

• The insurer assesses the creditworthiness of buyers for fixing credit limits.

• An extensive information database & constant monitoring provides an early warning to the insured that the buyer is in financial difficulty.

• Enables the insured to withdraw from the relationship on a structured basis.

1. The Policy shall not be assigned to any Bank/Financial Institution.

2. This Policy shall not be issued to cover receivables arising out of Financial and Consultancy Services.

3. This policy shall not be issued to cover Factoring and Reverse factoring business.

4. This policy shall not be issued to cover single shipments.

5. This Policy shall be issued only if the seller has a minimum of ten buyers.