|
Q1.
|
How does Business Credit Shield work as a sales product? |
|
|
|
A. Business Credit Shield may enable you to
sell more goods on credit terms while substantially
reducing the overall risk of exposure to non-payment.
It also may enable you to take advantage of peak and
cyclical selling periods and to safely expand into new
product lines or territories.
|
|
|
Q2.
|
What type of losses are covered? |
|
|
|
A.
Business Credit Shield covers the risk of non-payment
by your buyers due to insolvency, protracted default
(delay beyond agreed number of days) and political risks.
|
|
|
Q3.
|
What
happens if a buyer's financial condition seriously deteriorates? |
|
|
|
A. Your accounts
receivable will remain fully insured. You do have an
obligation to not make the loss any greater by continuing
to send goods to the defaulter. The insurer will normally
advise you when a stop-sales condition emerges.
|
top |
|
Q4.
|
Is
the company's credit management important to the insurer? |
|
|
|
A. Absolutely.
Insurers insist that the highest professional standards
be maintained in order for a company to be insurable.
The credit operation will be reviewed and recommendations
made to beef up resources where necessary.
|
top |
|
Q5.
|
What
are the Credit Management supports that I get by
taking this policy? |
|
|
|
We
provide two fold Credit Management support i.e. Credit
Monitoring and Credit Control.
Credit
Monitoring: During the policy period we receive
monthly statements of your sales. We keep a close
watch on client-wise sales and their payment patterns.
When integrated with our existing buyer database, this
gives us fairly exact indications of expected
financial capacity of your buyers. This may help you
in fixing your future sales, buyer-wise.
Credit
Control: While processing the proposal form, we
appraise a section of your buyers. This enables us to
fix Credit limits, both Buyer wise and Discretionary.
These limits are authentic indications of your
buyers’ paying capacity. We always advise you to
restrict your buyer-wise exposure according to the
respective limits. Again, whenever we revise the buyer
profile, we advise you to stop any further sales to
specific buyers who have severe negative revisions.
|
top |
|
Q6.
|
What is the Discretionary Credit Limit
(DCL)? |
|
|
|
A. If the insurer
feels the company's credit standards are of a professional
caliber, it will insure small buyers up to a defined
limit, i.e., the discretionary credit limit (DCL). Only
credit limits above the DCL need to be sent to the Insurer
for final approval. However, certain minimum requirements
as set out in the policy must be satisfied before granting
the DCL.
|
top |
|
Q7.
|
How do I get coverage on a buyer for an amount greater
than my discretionary credit limit? |
|
|
|
A. Coverage
for amounts greater than the DCL must be requested from
the insurer. Provide as much information as you have
available to assist the underwriter.
|
top |
|
Q8.
|
Why does the insurer approve the limit, less than
I asked for? |
|
|
|
A. The most
common reason is lack of information. If little or nothing
is known about a buyer, a professional credit manager,
or underwriter, can only approve a small limit or none
at all. The second common reason is that the underwriter
has become aware of a financially stressed situation.
In fact, it is this continuous monitoring by the underwriter,
of key buyers, that is the most valuable aspect of Credit
Insurance.
|
top |
|
Q9.
|
If my credit exposure on a buyer is greater than
my insured limit, do I still pay premium on all credit
sales to that buyer? |
|
|
|
A. Yes, In
fact you are considered to be "over trading", i.e. extending
an amount of credit, greater than warranted by the risk
to both yourself and the insurer, and is an example
of poor credit management.
You
pay premium on your annual sales because it is the
only basis that gives you a better value for your
premium money.
An example: Your valued client M/s XY has been
given an exposure limit of Rs. 100 lacs. Now consider
the monthly transaction that follows during next three
months.
| Month |
Sales during the month |
Payments |
Outstanding |
| 1 |
35 |
0 |
30 |
| |
30 |
0 |
65 |
| |
45 |
20 |
90 |
| 2 |
45 |
25 |
110 |
| |
55 |
30 |
135 |
| |
15 |
40 |
110 |
| 3 |
75 |
45 |
140 |
| |
15 |
30 |
125 |
| |
15 |
50 |
90 |
| Total |
330 |
240 |
90 |
Here,
the invoices are always less than the sanctioned
Exposure Limit i.e. Rs.100 Lacs. But as your real risk
is in outstanding, you can find that during second and
third month the outstanding goes beyond the exposure
limit. Lets examine the example in more details.
At
the end of the first and second month, your Monthly
Sales Statements indicate an outstanding of Rs.90 Lacs
and Rs.110 lacs respectively. If these amounts are the
basis of policy premium, the intermediate sales, which
end up in a higher exposure than the month end
balance, remain uncovered to that extent. In other
words, the policy will not be able to cover even an
invoice amount of Rs. 45 -55 Lacs although the premium
is paid on Rs. 100 Lacs (i.e. the sanctioned Exposure
Limit).
On
the other hand, when the premium is paid on the sales,
each invoice is individually covered. Whenever you
exceed the exposure limit, you get an advise from us
on the upcoming overtrading risk.
|
top |
|
Q10.
|
I only want to cover one or two buyers I am concerned
about, why can't I insure just those? |
|
|
|
A. History
shows that the buyers you are concerned about and are
watching carefully, are not always the ones to hit you
with a large loss. Also, insurers need to spread their
risk among a broad cross section of buyers, in order
to maintain proper underwriting standards.
|
top |
|
Q11.
|
Can
coverage on a receivable be cancelled? |
|
|
|
A. No, an insured
sale remains insured. Additionally, most insurers will
advise the insured if a buyer becomes un-creditworthy.
Should the insured decide to continue to sell goods
anyway, only the new sales would be at its own risk. |
top |
