Q1 How does credit insurance work as a sales product?
Ans. Credit insurance may enable you to sell more goods on credit terms while substantially reducing the overall risk of exposure to non-payment. With the information and backing of the credit insurance. You can take advantage of peak and cyclical selling periods and safely expand in to new product lines or territories.
Q2 What type of losses are covered?
Ans. Credit insurance covers the risk of non-payment by your buyers due to insolvency, protracted default and political risks.
Q3 What happens if a buyer’s financial condition seriously deteriorates?
Ans. Your accounts receivable will remain fully insured, You do have an obligation to not make the loss any greater by continuing to send goods. The insurer will normally advise you when a stop-sales condition exists and will cancel cover for all deliveries.
Q4 I only want to cover one or two buyers I am concerned about, why can’t I insure just those?
Ans. History shows that the buyers you have concerns about and are watching carefully are not always the ones to hit you with a large loss. Also, insures need to spread their risk among a broad cross section of buyers, in order to maintain proper underwriting standards.
Q5 If my credit exposure on a buyer is greater than any insured limit, do I still premium on all sales to that buyer?
Ans. 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.
Q6 Is the company’s credit management important to the insurer?
Ans. 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.
Q7 What is the Discretionary Credit Limit?
Ans. If the insurer feels the company’s credit management standards are of a professional caliber, it will insure small buyers up to a defined limit, i.e., the discretionary credit limit or 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.
Q8 How do I get coverage on a buyer for an amount greater than my discretionary credit limit?
Ans. 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.
Q9 Why is the limit approved by the insurer, less than I asked for?
Ans. The most common reason is lack of information. If little or nothing is know 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.
Q10. Can coverage on a receivable be cancelled?
Ans. No, am 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 it’s own risk.