Trade Credit Insurance Answers
Read six common questions about Trade Credit Insurance:
1. Are only manufactured product sales eligible?
- No. Service contracts are a product, and are equally eligible — be it the sale of containers of iPhones, licenses, maintenance contracts, ski lifts, or power plant.
- Only Real Estate construction is not eligible.
2. When do I get paid?
- Depends on insurer and country, but general rule is 45 to 180 days after filing a claim.
3. What circumstances are not eligible for payment?
- Whoa, aren’t all nonpayments, ‘disputes’? No. A customer may make such a claim, however insurers can independently test ‘dispute’ claims. For example, one common test is observing how their Client’s customer is paying other suppliers. If Client’s customer is largely not, then customer can say whatever they want but it is not considered a dispute.
- Product disputes between seller & customer.
- What if he’s paying other suppliers but not Client; is the claim still eligible?
- Yes, provided he is 90 days past the due date, &
- The customer debt to Client is validated by usual 3rd party remedies – collection agency, courts, etc.This ‘testing’ of the disputes is not done in a ‘star chamber’, but collaboratively with insurer.
- Are you sure? I’ve heard insurers are sneaky and will find a way out.
- No tricks. Similar to conventional banking products, the insurance is dependent on basic legal precedent of assignability in the Insureds country. If a company doesn’t have ‘an assignable interest’ in a customer who is not paying them, then nothing is there to provide an insurer in a claim. Banks live and die by assignability; most common for an individual’s home. Most common for companies is accounts receivable, or – in this case — their Client company’s accounts receivable. Insurers do too.
4. If it’s like a bank, why don’t I just go to the one handling my mortgage?
- Some do. Except banks come with quite a bit of hair:
- Banks cannot offer companies credit on 80MM+ companies worldwide.
- Banks limit or prohibit lending backed by foreign customer and key customer accounts receivable
- Additional capital requirements – yours and/or your customers,
- Require filing of liens
- Customer notification requirements,
- Usage restrictions,
- Slow to setup, and
- Comparatively expensive.
- Some banks fill the inability to write 80,000,000+ different companies globally by buying insurance themselves. Others simply lower the credit they’ll offer, or ask the borrower for additional capital to secure the loan.Directly purchasing insurance is your company’s chance to selectively use credit for its own benefit – and more importantly – for your customers. They appreciate it, and will buy more product.
5. When is it appropriate to use banks?
- Many instances where it is appropriate to use a bank. Generally speaking differentiator is when a company needs cash upfront for operating purposes, yet customers want payment on terms. In these instances, the insurance is purchased by companies as an inexpensive enhancement alongside the loan. Having insurance increases the value of the bank loan AND reduces the cost when compared to alternative standalone financings.
6. How hard is it to file a claim?
- Submit a claim form
- Attach evidence (electronic form or actual versions of):
- Purchase order
- Proof of delivery (bill of lading)