Trade Credit Insurance Policy - Coverage, Benefits and Exclusions

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Contents
  1. Trade Credit Insurance Policy - Coverage, Benefits and Exclusions
  2. Forget all your worries about Bad Debts
  3. Solution
  4. You can protect yourself from Risk of Bad Debts by purchasing a Trade Credit Insurance Policy
  5. What is a Trade Credit Insurance Policy?
  6. What does a Trade Credit Insurance Policy Cover?
  7. Protracted Default/Delayed Payment
  8. Insolvency
  9. Political Risks
  10. What are the Benefits of a Trade Credit Insurance Policy?
  11. Protection against Bad Debts:
  12. Potential for Increased Sales:
  13. Better Cash Flow:
  14. How does a Trade Credit Insurance Policy work?
  15. What is the Premium for a Trade Credit Insurance Policy?
  16. What is the Sum Insured for a Trade Credit Insurance Policy?
  17. What are the Exclusions under a Trade Credit Insurance Policy?
  18. What is the Claims Process under a Trade Credit Insurance Policy?
  19. Will my Premium be higher if I purchase a Trade Credit Insurance Policy through an Insurance Broker?
  20. Interested in purchasing a Trade Credit Insurance Policy and securing the risk of Bad Debts?
  21. FAQS
  22. Testimonials

What is Trade Credit Insurance, Policy, Coverage, Benefits and Exclusions?

Forget all your worries about Bad Debts

If you're a Business Owner, be it Manufacturing or a Trading Business, you may be aware of these problems:

  • You might be facing issues with Unpaid Invoices
  • Bad Debts might be constraining your Cash Flows
  • Expansion in Newer Geographies or Sales to New Customers is difficult due to limited Credit History

Such issues restrict the ability of every Business Owner to grow their business. If you have faced any of the issues listed above, then you should immediately secure yourself with a Trade Credit Insurance in India.

Solution

You can protect yourself from Risk of Bad Debts by purchasing a Trade Credit Insurance Policy

In today's uncertain economy, a major risk that most businesses face is that of Unpaid Invoices. Most of the business in today's time is done on Credit Basis where the Seller extends Credit to the Buyer.

With major economies of the world slowing down, many Companies are facing Insolvency. If you are a supplier to such Companies, Non-Payment of Dues by such Companies may also lead to your Company facing huge losses and put your business at risk. Credit Risk, is thus, a huge risk for businesses in today's times.

A Trade Credit Insurance Policy (aka Accounts Receivables Insurance or Bad Debts Insurance) is a prudent Risk Management Tool to protect your Company from the Risk of Non-Payment of Dues.

Commercial General Liability Insurance Policy - Definition, Coverage, Benefits and Claims Process

What is a Trade Credit Insurance Policy?

A Trade Credit Insurance Policy in India provides Insurance against the Risk that the Company's Customer fails to pay for the Goods or Services that he has received. Trade Credit Insurance is also commonly known as Bad Debts Insurance or Accounts Receivable Insurance. It is an efficient way of protecting yourself against the risk of Unpaid Receivables for Sales done on Credit Basis.

All forms of Sales done on Credit Basis, that is, Export Sales and Domestic Sales can be secured with a Trade Credit Insurance in India. Therefore, a Trade Credit Insurance Policy is a combination of Export Credit Insurance and Domestic Credit Insurance.

Consider a Case where an Indian Chemical Manufacturer supplies goods to its International Clients on Credit Basis. Trade Credit Insurance in India protects the Manufacturer against the Risk of Payment Delays or Non-Payment by the Buyers.

What does a Trade Credit Insurance Policy Cover?

A Trade Credit Insurance Policy is designed to protect the Seller from the Risk of Non-Payment by the Buyer for the Goods or Services he has received. Typically, a Trade Credit Insurance covers the following:

  1. Protracted Default/Delayed Payment If the Buyer fails to make the payment to the Seller within a pre-defined period from the date of Receivable Due, it is known as a Protracted Default. A Credit Insurance Policy covers Delayed Payments beyond the pre-defined periods and compensates the Seller for the same.
  2. Insolvency Section A Trade Credit Insurance Policy will reimburse the Insured for the payment owed to him if the Buyer becomes Insolvent and does not pay.
  3. Political Risks Sometimes a Buyer may not be able to make payment to the Seller on account of circumstances beyond his control. Consider a Case where a Seller supplies goods to the Buyer in an overseas jurisdiction, however the Buyer is unable to make the payment because of Local Regulations or Political Issues in his Country. Such issues of Non-Payment will also be covered under a Trade Credit Insurance Policy.

What are the Benefits of a Trade Credit Insurance Policy?

A Credit Insurance Policy offers many benefits as follows:

  1. Protection against Bad Debts: Accounts Receivable constitute a significant portion of the Balance Sheet. Unpaid Invoices can adversely impact a business. A Trade Credit Insurance Policy protects a business from Risk of Bad Debts.
  2. Potential for Increased Sales: When the company's Accounts Receivables are Insured, the Insurance Company conducts a Credit Appraisal on the Company's Customers and grants a Credit Limit. This allows the Company to make Sales to newer customers and expand into newer geographies where the Company would not have much information on the Credit History of the Buyer since any Default by the Customer would be paid by the Insurance Company.
  3. Better Cash Flow: A Credit Insurance Policy would make payment even if the dues are outstanding for more than a certain number of days (Protracted Default). This keeps the Receivables Days Outstanding under check and leads to better Cash Flow for the Company.

How does a Trade Credit Insurance Policy work?

A Trade Credit Insurance Policy allows the Insured Party to take informed decisions regarding extending credit to customers. The Credit Insurance Company monitors the performance of various buyers, set credit limits and also provide early warning signals of potential payment difficulties.

Here are the steps involved in arranging a Trade Credit Insurance Policy

  1. Assess Customer Health and set Credit Limits: The Insured needs to submit information on buyers including customer financials, receivables outstanding and overdues etc. Based on the information, the Trade Credit Insurance Company sets credit limits for each customer. Credit Limit is the maximum amount that the Trade Credit Insurance Company will reimburse in case of a default.
  2. Trade Credit Insurance Policy Quote and Terms & Conditions Once the credit limits are set, the Credit Insurance Company will provide a quote for Trade Credit Insurance Policy along with the terms and conditions. The Insured can negotiate the Trade Credit Insurance Policy terms and conditions alongwith negotiating the quotes as well. Once the Policy terms and quote is finalised, the Trade Credit Insurance Policy Coverage begins upon payment of premium.
  3. Monitoring and Reporting: The Trade Credit Insurer monitors the performance of each buyer and also warns of potential payment difficulties. In case of a claim, the Trade Credit Insurance Company will reimburse 85% to 90% of Invoice Value based on submission of required documents.

You can read our blogpost on the benefits on Trade Credit Insurance Policy in India to understand about the advantages of Credit Insurance Policy in detail.

What is the Premium for a Trade Credit Insurance Policy?

The Premium for a Credit Insurance Policy will depend on the following factors

  • Sum Insured and Turnover of the Company
  • Industry in which the company operates
  • Prior Claims Experience
  • Credit Terms which the company offers to its customers
  • Risk Profile of the Customers including their payment behaviour, history of defaults etc.

What is the Sum Insured for a Trade Credit Insurance Policy?

The Sum Insured for a Credit Insurance Policy will normally be the Annual Credit Sales Turnover of the firm. The Sum Insured would exclude all Sales done against Advance Payments and against Letters of Credit.

Who needs to purchase a Comprehensive General Liability Insurance Policy?

What are the Exclusions under a Trade Credit Insurance Policy?

A Trade Credit Insurance Policy typically excludes the following:

Exclusions under a Trade Credit Insurance Policy
Disputes: Payments not made on account of Disputes between Buyer and Seller are not covered under a Credit Insurance Policy Sales made against Advance Payment and Irrevocable Confirmed Letters of Credit will not be covered under a Credit Insurance Policy
Sales to Subsidiary and Associates will not be Insured under a Trade Credit Insurance Policy Sales made to Government Bodies are generally not covered under a Credit Insurance Policy

What is the Claims Process under a Trade Credit Insurance Policy?

The Trade Credit Insurer requires the following documents to process a Claim under a Trade Credit Insurance Policy:

  • Duly Signed & Stamped Notification of Overdue Account Form
  • Clear & Legible Invoice Copies
  • Statement of Account
  • Proof of Delivery
  • Purchase Order
  • Sales Contract
  • Debit Note Copy (If there are any)
  • Copy of Communication with the Debtor following up for Payment
What is the Claims Process under a Trade Credit Insurance Policy?
Insurance Protects against Insolvencies and Protracted Defaults

Insurance Protects against Insolvencies and Protracted Defaults

Allows you to grow sales and business

Allows you to grow sales and business

Insures Domestic Credit Sales as well as Export Credit Sales

Insures Domestic Credit Sales as well as Export Credit Sales

Get Reimbursed upto 85% of the Invoice Amount

Get Reimbursed upto 85% of the Invoice Amount

Hassle-Free Claims Settlement

Hassle-Free Claims Settlement

Will my Premium be higher if I purchase a Trade Credit Insurance Policy through an Insurance Broker?

NO. There is no additional cost of purchasing a Trade Credit Insurance Policy through an Insurance Broker. In fact, approaching an Insurance Broker helps you since the Broker can negotiate with multiple Insurance Companies on your behalf thus helping you to get a better rate.

An Insurance Broker will also make sure that all your risk exposures are taken care of through better understanding of the Policy Wordings and Clauses of the Insurance Policy.

Will my Premium be higher if I purchase a Trade Credit Insurance Policy through an Insurance Broker?
Interested in purchasing a Trade Credit Insurance Policy and securing the risk of Bad Debts?

Interested in purchasing a Trade Credit Insurance Policy and securing the risk of Bad Debts?

A Trade Credit Insurance Policy is the best tool for protecting your Receivables. Qian is a specialist Trade Credit Insurance Broker with experience of serving customers across industries for their Credit Insurance needs.

Being an Insurance Broker empanelled with leading Insurance Companies in India, the team of experts at Qian is well-versed with the various coverages that different companies offer and can thus offer you a customised Trade Credit Insurance Policy tailored to your needs. Qian offers 24/7 FREE Claims Assistance for all the Claims in the Credit Insurance Policy so that you never have to worry about Claims.

Request your FREE 1 hour consultation with Qian for your Trade Credit Insurance Policy at support@qian.co.in or ๐Ÿ“ž 022-35134695 ๐Ÿ“ž 022-35134695 or fill this Contact Form.

FAQS

What is Trade Credit Insurance?

Trade Credit Insurance is a type of an Insurance Policy which reimburses the Insured Party due to the non-payment of dues by the customer that the insured is entitled to on account of the goods or services that he has supplied to the customer.

Who needs to purchase a Trade Credit Insurance Policy?

Anybody who does business on credit, whether they are a manufacturer, a trader or simply a service provider, should purchase a Credit Insurance Policy in order to protect themselves from the risk of Bad Debts.

What is cost of Trade Credit Insurance?

The cost of Trade Credit Insurance depends on the following factors

  1. Sum Insured
  2. Prior Default History of the Insured's Customers.
  3. The payments track record of the customer's industry

Testimonials

Average Customer Rating:

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Hemik of Qian is knowledgable, prompt and very professional - highly recommended. I had to claim for a critical illness under my health insurance policy and Qianโ€™s assistance with the claims process and advice on how to deal with the insurer was invaluable.

Niyati Shah