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TRADE CREDIT INSURANCE

ABOUT

Credit Terms are offered by businesses to their customers as an alternative to prepayment, cash on delivery or irrevocable letter of credit terms, providing time for the customer to pay for the product, requiring the vendor to assume non-payment risk.

In any transaction, especially an export transaction, the risk increases when customers’ reputation and payment terms are not fully understood. The vendor might not receive payment for any shipment simply due to buyer’s default even after the maximum time specified in the “Contract of Sale”. Non-payment could arise due to several reasons including insolvency or political risks.

Trade credit insurance is a finance tool to secure customers’ debts. Trade Credit Insurance could, therefore, be a handy financial tool for such Firms or Organisations.

TRADE CREDIT INSURANCE

BENEFITS

SEVERAL LIMITS FOR SUM INSURED

As the Policy covers non-payment for shipments (and not for loss or damage to goods), three important factors are specified in the Policy, namely “Buyer Limit”, “Country Limit” and “Policy Limit”.

FINANCIAL LOSS DUE TO NON-PAYMENT

  • Non-payment by buyer could arise due to factors such as insolvency, protracted defaults and political risks.
  • Policy indemnifies the Insured in respect of such non-payment by Buyer.
  • Indemnity will normally be a percentage of the total outstanding pertaining to the shipment.

INFORMATION ABOUT CLIENTS

Insurer makes a thorough screening of the proposed buyer’s financial health and informs the Insured of any short comings that would ultimately lead to non-payment of shipments. This will enable the Insured to take preventive actions.

BORROWING OPTIONS

If the non-payments are kept at a minimum level, the Books will appear healthy. This can help the Insured to borrow from financial institutions at lower interest rates and take his business to the next level.

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