Financial & Special Risk Insurance
Trade Credit Insurance
Trade Credit Insurance is a policy that protects businesses against losses due to non-payment by buyers. It ensures that companies receive payment for goods and services even if their customers default, go bankrupt, or fail to pay on time.
This insurance is ideal for exporters, manufacturers, wholesalers, and businesses offering credit terms to clients. It helps businesses manage cash flow, reduce bad debt risks, and expand sales safely.
Why Trade Credit Insurance is Essential?
- Protects Against Customer Default
- Ensures Cash Flow Stability
- Encourages Business Expansion
- Strengthens Financial Position
- Helps in Credit Risk Management
Important Things You Should Note
- Types of Trade Credit Insurance
1. Whole Turnover Policy – Covers all receivables.
2. Key Accounts Policy – Covers selected high-value customers.
3. Single Buyer Policy – Covers one specific buyer.
4. Export Credit Insurance – Covers international transactions. - Coverage Limits & Exclusions
Each buyer is assigned a credit limit, determining the maximum coverage amount. - Claim Processing Time
Claims are typically processed after a waiting period (e.g., 90-180 days) from the due date. - Premium Costs
The premium is based on business turnover, buyer risk profile, and industry type. - Trade Credit vs. Factoring
Trade Credit Insurance protects against non-payment, while factoring involves selling receivables for immediate cash.
What is Covered & What is Not Covered?
What is Covered?
- Customer Insolvency – If a buyer declares bankruptcy, the policy covers unpaid invoices.
- Protracted Default – If a buyer consistently fails to pay beyond the agreed period.
- Political Risks – For export businesses, covers losses due to war, sanctions, or government actions.
- Commercial Credit Risks – Covers buyers who refuse to pay due to financial instability.
- Collection Support – Some policies assist in debt recovery from delinquent customers.
What is Not Covered? (Exclusions)
- Disputes Over Quality or Contract Issues – Non-payment due to disagreements is not covered.
- Delays in Payment – If a buyer pays late but eventually pays, it’s not considered a claim.
- Fraudulent Transactions – Losses due to internal fraud or false invoicing are excluded.
- Sales to Government Entities – Unless specifically covered under a political risk policy.
- Pre-Existing Bad Debts – Coverage does not apply to invoices issued before the policy start date.
Frequently Asked Questions (FAQs)
Who should get Trade Credit Insurance?
Businesses that sell on credit terms, including manufacturers, exporters, distributors, and service providers.
How much does Trade Credit Insurance cost?
The cost varies based on annual revenue, industry risk, credit limits, and past payment history of customers.
How long does it take to receive a payout?
Payouts depend on the waiting period (typically 90-180 days) after the payment due date.
Can I cover international buyers?
Yes, export credit insurance protects against foreign buyer defaults and political risks.
Does the policy cover partial payments?
If a buyer makes partial payments but defaults on the remaining amount, a claim can be made for the unpaid portion.
