As a result of Globalization, there is growth in trading opportunities and companies are faced with increasingly complex needs in terms of trade receivables management. Credit Insurance is a tool which can provide the right protection with preliminary evaluation of buyers and securing the trade. The cover protects the companies against customer defaults. It covers the sales of the companies to its buyers on credit against the risk of loss due to the insolvency and protracted default of their customers. It can be of great help in growth of sales by allowing the secure development of new buyers, new markers and the credit extended to a buyer. You will need an experienced consultant to advise you on the cover you should buy for your business.
Buyer's Credit Analysis
Credit risk industry has extensive database of buyers created over decades of operation to provide valuable and vital information to sellers. Credit insurance companies not only carry out immediate and extensive credit analysis for every buyer but also monitor their creditworthiness.
Credit Limit and Indemnity
The credit limit does not exceed the maximum exposure of the insured against a particular buyer and is always a multiple of the Premium. The policy may cover up to 80% of the insured debt. Recent changes in regulation allow insurers to selectively insure up to 90% of the Insured debt.
Insuring Selective Clients
Insurers base their pricing of the risk on a gamut of default possibilities across varied buyer profiles. Credit risk does not allow a choice of overage only for one or a few high risk clients. You can nevertheless insure a specific product or business line if you keep a distinct accounting for them.
Are All Defaults Covered
The primary purpose of credit insurance is to cover risk of delayed payments, buyer insolvency, withdrawal of trade licenses, government action preventing buyer payment. A buyer default due to a disputed trade credit or losses created due to currency risks are not covered.
Credit insurance companies have organised recovery services to assist clients in recovering their payable dues. Insureds benefit from a support service which can help them recover dues faster than the usual recoveries, improving cash cycles and risk of outstanding write offs.
Payment of Defaulted Credit
All Credit insurance claims come into play only after the agreed credit period. An Insured can make a choice of extending the credit period provided it does not exceed the policy maximum. Once a default is intimated insurers will make payments after a 150-180 day waiting period.