Project Insurance
Trade Credit Insurance Policy
Trade Credit Insurance, also known as Credit Risk Insurance, is a financial protection policy that safeguards businesses against the risk of non-payment or delayed payment by their buyers (domestic or international). This insurance helps ensure a company’s cash flow stability and protects accounts receivable, especially in the event of buyer insolvency, bankruptcy, political risks, or protracted default.
Why Is Trade Credit Insurance Essential?
- Protects Against Buyer Insolvency or Bankruptcy
Covers losses arising from non-payment due to financial failure of customers. - Improves Working Capital & Cash Flow
Helps businesses maintain liquidity by minimizing receivables-related losses. - Supports Sales Expansion
Enables safe credit sales, even in high-risk or new markets (domestic or export). - Better Financing Opportunities
Banks and financial institutions are more willing to lend against insured receivables. - Mitigates Political Risks (For Exporters)
Protects against political instability, currency issues, or government interference in foreign markets.
What is Covered & What is Not Covered?
What Does It Cover?
- Buyer insolvency (bankruptcy or liquidation)
- Protracted default (delayed payments beyond agreed terms)
- Political risks (war, currency inconvertibility, government restrictions – for exports)
- Commercial risks (refusal or inability to pay due to internal buyer issues)
- Credit risk due to economic downturns
- Whole turnover coverage (entire sales ledger) or selected buyers/transactions
What Is Not Covered?
- Disputes over quality of goods/services
- Non-payment due to fraud or breach of contract
- Sales to government buyers without special endorsement
- Pre-existing overdue invoices at the time of policy purchase
- Risks not specifically covered in the policy terms
- Natural disasters affecting buyer’s ability to pay (unless separately endorsed)
Types of Trade Credit Insurance
- Whole Turnover Policy – Covers all or majority of a seller’s receivables.
- Named Buyer Policy – Covers specific high-value buyers.
- Single Risk Policy – Covers a single sale or buyer.
- Export Credit Insurance – Covers overseas buyers and includes political risks.
- Domestic Credit Insurance – Covers non-payment risk from local/domestic buyers.
Product Liability
- Businesses must regularly report buyer defaults and overdue payments.
- Policy requires prompt communication with insurer in case of delays or risks.
- Trade credit insurance does not guarantee payment, but indemnifies based on terms.
- It is a risk transfer and trade facilitation tool—not debt recovery.
Frequently Asked Questions (FAQs)
Who should buy Trade Credit Insurance?
Exporters, wholesalers, manufacturers, distributors, and suppliers offering goods/services on credit terms.
Is political risk included for domestic sales?
No, political risk cover is only for exports (cross-border sales).
Can small businesses buy Trade Credit Insurance?
Yes, many insurers offer products tailored for SMEs with simplified underwriting.
How are premiums calculated?
Based on annual turnover, buyer risk profile, credit limits, and historical losses.
Does it cover post-shipment risk?
Yes, the policy typically covers risk after goods/services are delivered on credit.
Can it help in securing bank loans?
Yes, banks often accept insured receivables as collateral for working capital finance.
Is claim settlement fast?
Once documentation is verified and claim terms are met, insurers settle within the agreed timeframe (usually 60–90 days from due date).
