What is Trade Credit Insurance?
Receivables Collection Insurance is a unique financial instrument which protects you from the risk of non-payment from one or more buyers due to deteriorating financial circumstances or bankruptcy. It enables you to sell your goods and services with postponed payment, while being sure that you will collect your receivables. An additional advantage is that you don't have to demand bank guarantees and letters of credit from buyers, thus increasing competitiveness of your offer without exposure to any additional risk.
What are the advantages of the Trade Credit Insurance?
- Revenue is insured as long as you act in accordance with the export contract,
- Possibility of more aggressive emersion on new markets, since you offer buyers attractive credit conditions,
- Demanding guarantees and letters of credit is unnecessary, hence you don't expose the buyer to additional expenses,
- Considering that the buyer does not know your receivables are insured, you demonstrate your trust and offer your contribution in establishing and developing good relations,
- On the basis of insured receivables you can use IGA's factoring service and thus secure financing for working capital,
- Relation with your commercial bank is bolstered, since the bank is now assured in your revenue,
Insurance Policy can be offered to other financial institutions as a sort of additional insurance for credit arrangements,
- Insurance Policy offers you a better position for negotiations with suppliers, who are informed that you have undertaken steps for decreasing the collection risk; hence they are open to negotiations on new and better conditions for crediting raw material.
What amount can be insured?
Insured sum is a monetary amount on which insurance has been concluded through a particular buyer, while presenting the highest receivable, in other words the highest average exposure of the exporter towards the buyer for the duration period of insurance. The insured sum is approved based on assessment of the buyer's solvency, the present and planned scope of sales towards the buyer, industry branch, buyer's country and risk distribution between buyers in the exporter's portfolio. Up to 90% of the receivable amount is insured, while the rest (uninsured receivable amount) represents a share from the insured person for eventual damage.
When can I seek an indemnity claim?
In case of emergence of one of the insured risks, you can seek an indemnity claim if you have fulfilled all the agreement obligations from the Export Contract and Insurance Contract. In the case of buyer bankruptcy, you can seek an indemnity claim immediately after registering for bankruptcy estate, while in other cases six months after the receivables deadline (waiting period). The indemnity amount is represented by the amount of unpaid mature receivables minus one's own participation, with a maximum up to the insured sum amount (approved credit limit).
How much does the Receivables Collection Insurance cost?
Insurance premium amount depends on numerous factors. Firstly, it is important to define if the risk is of commercial, political or dual nature. Moreover, premiums are different depending if the risk applies to the period of sale preparation or the period after a completed sale. The premium level is affected by the country risk in which the buyer is situated, as well as the number and arrangement of buyers throughout individual countries (dispersion of risk between buyers in exporter portfolio). For a particular case and more information, contact the staff in one of IGA's offices.
It is important to mention that the insurance premium is calculated and paid monthly on the basis of generated sales, but if in a certain month there were not any sales, the premium for that month does not have to be paid.
...but how much does a loss cost?
Let us take, for example, if your gross profit is 10% and you deliver goods worth 100.000 KM. If your buyer does not pay, the loss does not amount to only 10.000 KM of your profit, but the 90.000 KM of invested funds which you will need to recover with a new realization. To recover your loss, you would need to sell goods with a value of 900.000 KM, which means findings additional buyers and from newly generated profit recovering the lost 100.000 KM.
What are the experiences like with the Credit Insurance?
- IGA has, in the name of its clients, collected more than 1.000.000 EUR of receivables before the payment default (before the expiration of the waiting period of 180 days),
- We have paid 250.000 EUR of claims to companies which were insured with us,
- One reputable company has been saved from bankruptcy, while many have been saved from great troubles which would ensue if they were not insured,
- We have undertaken the risk of non-payment for over 500 buyers,
- More than 50 leading companies in BiH have placed their trust with IGA and have been insured with us,
- Majority of insured companies has advanced its relations with commercial banks, suppliers and buyers using the Trade Credit Insurance.
What I need to do to insure my collection?
In order to insure receivables from one or more buyers, you need to fill out an application form and to submit it together with requested documentation to the nearest IGA office. After application approval and contract signing, you receive an insurance policy with which you have secured the collection of your receivables.
Thanks to the gained trust, today we have become a reliable partner and support for the development of the leading companies in BiH.