Non-Payment Protection for Sellers of Goods & Services
Companies use credit insurance to protect against the non-payment of domestic and foreign accounts receivable and other debt instruments.
A policyholder may choose to insure their entire portfolio, opt to cover a select group of accounts or even purchase coverage on a single customer.
Policies generally indemnify a seller for 90%-100% of the payment obligation value. The maximum limit of liability for any single risk typically ranges from $50MM to $100MM per insurer.
Potential Policy Structures:
Structured to cover all or the majority of a company’s sales and generally viewed as the most cost effective. The program covers a broad spread of risk with sales terms typically not exceeding 360 days.
Structured to insure a select group of buyers sharing similar characteristics. Applicants typically request coverage on customers located in certain geographic regions, operating within specific industries, or those with credit limits or sales terms beyond a certain threshold. Maximum sales terms generally do not exceed 360 days.
Coverage only applies to accounts receivable owing from one specific buyer. Policies may be used to support ongoing sales over the course of a one-year period or for one-off transactions. Sales terms do not typically exceed 360 days.
Coverage for accounts receivable with payment terms of greater than one-year but typically not exceeding seven years. Policyholders generally insure a single buyer but coverage on a portfolio of customers is possible. A down payment may be required.
Why Buy Credit Insurance?
Credit insurance offers benefits to policyholders in three key areas:
– Increase export sales by entering new foreign markets
– Utilize “top-up” cover to increase existing credit limits for individual customers
– Provides the collateral for creative financial solutions including:
• Non-recourse “off balance sheet” financing through selling of accounts receivable
• Revenue recognition strategies
• Receivable securitization
Manufacturers designing and building custom goods run the risk of a contract being terminated prior to shipment. Pre-shipment coverage indemnifies policyholders for the costs of design, supply, and manufacture of goods not delivered due to customer bankruptcy and/or political risks.
Some industries, such as commodity trading, require payments significantly in advance of product delivery. Insurance policies are available to specifically cover the risk of non-delivery and subsequent failure to repay the advance amount.
Failure to pay insurance is available for leasing arrangements with lessees located across the globe. Capital and operating leases are both eligible. Coverage is typically available for leasing terms of up to five years.