:: Credit Insurance User Guide (Credit Insurance Policy Example)

COFACE UK

The Open Trader Policy

The User Guide This Guide is intended to act as a practical guide to your Credit Insurance Policy. However, where any further clarification is required, please refer to the policy wording and it is the policy wording that prevails.

Contents

• A brief overview of cover
• Limits - including any agreed discretionary level
• Terms of Payment
• Notifications
• Excess
• Pre-Legal & legal Collection Service
• Claims
• Recoveries
• Declarations of turnover & premium payments
• Renewal of your policy

1. Brief overview of cover

The policy covers debts arising from deliveries to insured customers in the normal course of your business. ·

1. Deliveries to countries listed in Group 1 of your schedule are covered against losses as a result of "commercial risk", which includes either a customer's insolvency or default
2. Deliveries to countries listed in Group 2 of your schedule (if applicable) are covered against losses resulting from both "commercial risk" and "political risk"
3. Cover is provided for customers in those countries detailed in your policy schedule.

"Insolvency" includes bankruptcy, liquidation, receivership and administration. "Default" cover applies where a customer fails to pay his debt after an agreed period and includes failure to pay as a result of fraud or disappearance.

You are covered up to the Indemnity level (85%) as detailed in your specific policy documents.

You are NOT covered for:

1. Amounts above the indemnity percentage.
2. Any debt above the agreed credit limit.
3. Disputes - unless the dispute has been ruled in your favour.
4. Deliveries to associated or subsidiary companies.
5. Deliveries made after the expiry of an extension period.
6. Cash against documents sales.
7. Sales made on "letter of credit" confirmed by a bank in the UK.
8. Binding contract cover of more than 6 months, (unless specifically agreed).
9. Work carried out prior to delivery, (unless specifically agreed).

Please note that it is your responsibility to advise Coface UK of any changes to the nature of your business during the policy period. <<back to top>>

2. Limits

Credit limits specify the maximum outstanding balance of credit covered on an individual customer's account at any one time. With longer terms of payment it is important that you apply for the correct limit to cover the maximum outstanding balance for each customer.

Coface UK will approve or reject credit limit applications based on the credit information available from internal and external sources. You will be sent formal written notice of decisions by fax followed by confirmation in writing.

Please ensure that you apply for credit limits on the exact customers with whom you are trading. This is particularly important where there are large groups of associated companies involved or where your customer is a non-limited business, (i.e. a sole trader or partnership). Wherever possible, please provide a company registration number or VAT number. This will make it easier for us and/or underwriters to quickly identify your customer.

It is your responsibility to ensure that you have cover for the correct legal entity with whom you are trading.

We can provide a list of those limits currently held by you on request. From time to time we make ask you to review the list and remove any that you no longer require.

Credit limits are valid indefinitely, unless underwriters give specific dates, and are valid from the date on which the decision is made. On request, underwriters may backdate the credit limit to the date of your application.

Coface UK can amend or cancel a credit limit at any time. You are covered for deliveries made up to the point that you receive their notice of reduction/cancellation of a limit. Further deliveries will not be covered.

Please note that you must make underwriters aware of any existing binding contracts within 7 days of the reduction or cancellation of the limit. <<back to top>>

3. Terms of Payment

You will see on your policy document that underwriters have specified:

1. A maximum initial credit period and
2. An extension period

The "maximum initial credit period" relates to the maximum number of days credit that you may offer to your customers. We would expect your invoices to detail the terms of payment given. This means that your policy can cover various payment terms up to the maximum initial credit period. In all cases, the terms of payment as detailed on your invoice will prevail unless there is a separate contractual arrangement signed by both parties.

The "extension period" runs from the contractual due date. It enables you to collect payments from the customer before the account becomes notifiable to Coface UK. Once an amount is notified to Coface UK, any further deliveries will not be covered until the outstanding amounts are paid.

To reiterate, the extension period will start from the contractual due date, which may be sooner than the maximum initial credit period. The contractual due date would normally be specified on the invoice.

It is important to be aware that after the expiry of the extension the account should be placed on "stop". Any further deliveries you make will not be covered by the policy. At that stage, you must notify Coface UK of the late payment on the correct form.

Please note that the timescales specified in the terms of payment commence from delivery. This means:

1. The point at which you fulfil your obligation to make the goods available to your customer, at the place and on the time specified in your contract, or,
2. Where the contract is for the provision of services, "delivery" means the submission to your customer of the relevant invoice, or the provision of the services, whichever is the later.

The following example should clarify the situation:

1. Invoice date is January 1, (assuming that no further invoices are issued).
2. Terms of payment, as detailed on the invoice, are 30 days from invoice date.
3. Maximum initial credit period is 60 days.
4. Extension period is 30 days, before account put on stop as at March 1. Question: When must this invoice be notified to Coface? Answer: By April 1st - that is 30 days as per invoice plus 30 days extension period, plus 30 days to actually send in the notification form. <<back to top>>

4. Notifications

It is a requirement of the policy that Coface UK are notified of the following circumstances.

1. The expiry of an extension period where payment has not been received, (you have 30 days in addition to the extension period to actually send off the notification form). Any further deliveries you make after the expiry of the extension period will not be covered.
2. Where you are in possession of adverse information about your customer or where you have been advised of your customers insolvency. (Coface UK will require immediate notification in these circumstances). Any further deliveries you make after being made aware of adverse information will not be covered.

Failure to notify Coface UK correctly, (and to continue notifying on a monthly basis), when accounts become notifiable is the single biggest reason for claims to be refused. <<back to top>>

5. Excess

You have excess as detailed in your Specific Policy Terms, threshold of £1,000 (T/H).

The threshold is the minimum amount of claim that may be submitted to Coface UK.

For example, if there is a threshold of £1,000 and the net debt incurred is £990 no claim is possible. However, if the net debt is £1,010 then a claim can be made. <<back to top>>

6. Pre-Legal & Legal Service

Coface UK can provide pre legal collection service as part of the policy. This can be for domestic customers only, export only, or both.

Where the pre legal option is selected, Coface will pursue the debtor in an attempt to obtain payment of the outstanding amounts.

Coface UK will always provide the legal service; they will instruct solicitors where legal action has to be taken.

Disputes are not covered under this policy until such time as they are amicably resolved or you have obtained judgement in your favour. <<back to top>>

7. Claims Claims will be paid within the following timescales:

1. With insolvency cases, Coface UK will pay a claim within 30 days from receipt of all relevant documents.
2. For default cases, claims will be paid 5 months after the original notification of non-payment to Coface UK, subject to receipt of all relevant documents.

To speed up the payment of claims, Coface UK will require copies of all invoices relating to the amount of the claim, together with confirmation of all deliveries in the form of signed delivery notes.

Coface UK will also require a trading history for the 12-month period prior to the insolvency or default occurring. Coface UK does not normally ask for confirmation of debt if all invoices and delivery notes are made available. <<back to top>>

8. Recoveries

A recovery is any amount received relating to the customers account before or after the event causing the loss. A recovery can come from your customer, from someone acting on your behalf or from a third party. For example, a recovery could include:

1. Any security or surety you realise
2. Any credit note that you raise
3. Any proceeds of goods you have, or could have, recovered, kept or resold. <<back to top>>

9. Declarations of Turnover and Premium Payments

At the start of the policy period you were asked for an estimate of insurable turnover, excluding VAT, for the forthcoming policy period, normally 12 months.

Your premium rate is multiplied by your estimate of turnover to arrive at an estimated annual premium. The minimum policy payment is a set percentage of estimated annual premium and is payable quarterly by direct debit.

At the end of the policy period you will be asked for the actual turnover relating to the previous insured period. This declaration must be returned within 30 days of expiry of the policy.

This is a whole turnover policy and as such the declaration of turnover must include all sales, (including sales below the excess), but excluding the following:

1. VAT
2. Sales to government bodies and associated or subsidiary companies
3. Sales made on letters of credit confirmed by a bank in the UK
4. Cash against document sales

From time to time, Coface UK will audit these declarations.

Adjustments can then be made to the premium payable, subject to the minimum premium for your policy. Any final balancing payment will be collected by direct debit.

Remember, there are no additional charges for limits where applicable, no additional costs for collection or legal work.

To keep costs as low as possible, all premium payments are collected by direct debit. Other payment methods will attract a surcharge.

In addition to the premium payments, Insurance Premium Tax is also payable at the prevailing rate. <<back to top>>

10. Renewal of your policy

Approximately three months before your policy expires, you will receive a request for the following information:

1. An estimate of turnover for the current and forthcoming policy periods
2. Details of bad debts incurred
3. A breakdown of the countries with whom you are trading
4. Any changes to your business that has occurred since the start of the policy period.

Upon receipt of this information Coface UK will be able to formulate renewal terms for the forthcoming policy period. Coface UK shall issue renewal terms no later than 30 days prior to renewal. Confirmation of renewal must be received prior to the renewal date. <<back to top>>