Buyer Non-Payment › Products › Iria

Buyer non-payment

Credit is the lifeblood of business. Exporters win contracts as much on the availability of credit as price as a major part of international trade is carried out on unsecured credit terms. Bad debt can have a devastating impact on your company’s cash flow and balance sheet and may jeopardize your access to bank credit. If not secured, your trade receivables should be insured just as any other company asset.

Single buyer non-payment

Single-buyer non-payment insurance indemnifies against the failure by a buyer to effect payment on the contractual due date.

Insurers will assess and price the risk according to various parameters including the country of risk, the tenor, the business sector, the buyer’s market reputation and financial strength and the quality of the underlying transaction, etc. An important factor will be the insured’s prior experience with the buyer. 

A wide number of buyers, especially in commodity trading, are well known to the insurance market and response on some of these names can be obtained in a matter of hours. 

Premium is usually charged on the insured exposure until the due date (e.g. X% per annum on exposure). Note, however, that the premium can be charged as a flat rate (small risks) or on the policy limit. 

Single-buyer non-payment policies may be subscribed by one or several insurers, depending on the transaction size and insurers’ capacities.

Market capacities for government buyers (CF) remain more significant, yet capacities for private buyers (CR) have grown consistently over the past decade, with a series of insurers able to write lines of USD 50,000,000 or more on individual transactions (see CF and CR columns in the Markets section).

With respect to tenors, the market can support government buyers CF risks up to 10 years (or longer in some cases) and up to 7 years on private buyers CR risks.

Whole Turnover and Multi-Buyer Credit Insurance

Coverage can be arranged on multiple-named buyers (Multi-buyer) or on all buyers (Whole Turnover), as an alternative to single-buyer insurance.

Multi-buyer and whole turnover cover makes sense for businesses having repeat short-term open-account sales to a wide number of buyers. They also make sense for insurers looking for risk diversification.

Among the main underwriters supporting multi-buyer and whole turnover insurance policies are Euler Hermes, Atradius, Coface, Zurich, Equinox, HCC, AIG, QBE, ONDD and Markel.  

Multi-buyer and whole turnover policies can be structured as “ground-up” or “excess” policies depending primarily on the strength of the insured’s credit risk management and risk retention capabilities.

Excess covers are usually cheaper, as the deductible protects insurers from the initial high-probability credit losses. Depending on its risk retention capabilities, the insured can significantly lower coverage costs via a higher deductible.

Typically, credit limits are set by the insurers. However, under excess covers, the insured can retain some autonomy via a discretionary credit limit (generally proportionate to the deductible).

Premium is typically charged on turnover but may alternatively be charged on credit limits. The policy limit will often be set as a multiple of the premium (for example premium multiplied by 60).