We are often asked when should the insured file a claim for non-payment? And what documentation is needed as part of claim submission?
Trade credit insurance policies provide coverage for two types of credit losses: Protracted default (slow-pay) and Insolvency (Insolvency is broadly defined, but most would recognize Chap 11 filing). When to file a claim is straightforward as trade credit insurance policies clearly spell out the claim filing timelines for both protracted default and insolvency.
Let’s review when to file a claim first, and then claim filing documentation.
Protracted default / Slow-pay
The insured has a customer (referred to as a buyer) that is experiencing financial difficulties. The buyer doesn’t dispute they owe the insured for the outstanding amounts, and wants to pay, but doesn’t have the ability to pay.
Following are a few reasons a buyer may not be able to fulfill their obligations to pay:
- Sales have declined due to overall economic conditions or
- The loss of a large customer
- One of their customers is not paying them
- Lost bank financing
- Increased interest payments due to leverage
- Fraud / mismanagement
Policy Timelines
Claim filing timelines vary by policy, but generally provide a window up to 180 days from invoice date. This is 150 days past due on 30 day terms of sale. If the terms of sale are greater than 30 days, the claim filing window could be longer.
When to File a Claim
The debt is within the claim filing window specified in the policy and you’ve exhausted your internal efforts to collect. One of the non-negotiables for the insurer is late filing a claim (missing the window to file the claim). The insured might be able to request a claim filing extension if the debtor is making payments, providing the debtor more time to pay. The claim filing extension still has to be requested in the claim filing window. If approved, this allows the insured to still file a claim if the debtor stops making payments or defaults on payment plan.
Insolvency
The claim filing window for insolvency is generally 10 – 20 days after receiving notification of the filing. In addition to filing the claim, some insurers may require the insured to file a Proof of Claim with bankruptcy court. If not required, the insurer will file the Proof of Claim on the insured’s behalf. The insurer will settle the claim per the amount reflected on the Schedule F.
Documentation
The claim filing documentation usually includes copies of purchase orders, contracts of sale, invoices, an aging report, bill of lading and/or proof of delivery, and in some cases the insured’s collection efforts. The documentation has to be consistent, meaning it’s clear that the debtor ordered the products/ services (P.O’s or contracts), the product was delivered / service preformed (BOL / POD), the insured invoiced the debtor (invoices), the debtor is past due (aging report) and possibly collection efforts. As part of the claim settlement process, the insured assigns their right to the receivables to the insurer. The insurer will then try to effect recovery (protracted default / slow-pay). Claim settlement will be delayed if required documentation is missing or unclear.
Since 2004, Securitas Global Risk Solutions, LLC (“Securitas”) has helped clients develop credit and political risk transfer solutions that provides value on numerous levels. As an independent trade credit and political risk insurance brokerage, Securitas is focused on developing comprehensive solutions that meet the needs of clients, ensuring complete understanding of policy wording and delivering excellent responsive service.
Disclaimer:
This blog post is meant to be informative and provide helpful tips and insights into credit insurance policies. It is not meant to supersede any policy requirements. Please consult your credit insurance policy for all requirements including claim filing deadlines and required documentation.
