Meaning
Application for compensation filed by a seller when a buyer fails to pay for goods delivered on credit. Credit managers submit a trade credit insurance claim to recover a percentage of the lost revenue. This policy acts as a safety net that protects the cash flow of the manufacturing firm.
Loss Compensation
Insurance companies pay out after a waiting period and a verification of the debt. The value of a trade credit insurance claim is usually based on the net invoice amount excluding taxes.
Insolvency Event
Bankruptcy of the buyer is the most common reason for the policy to trigger. Proof of the debt and the status of the buyer are required to validate the trade credit insurance claim.
Indemnity Payment
Payout rates often range from seventy to ninety percent of the total loss. Filing a trade credit insurance claim late can lead to a reduction in the payment or a complete rejection of the coverage. Diligent record keeping and prompt reporting are the only ways to ensure the full protection of the policy, and the insurer then takes over the right to pursue the debtor for the original amount.
Each claim must be supported by evidence of the delivery and the non payment of the invoice.
