Every rupee of credit you extend to a buyer is an unsecured loan. A single large buyer becoming insolvent — or simply refusing to pay — can trigger a cash flow crisis that threatens the entire business. Trade Credit Insurance protects your trade receivables against the three core risks of business-to-business credit: buyer insolvency, protracted default, and political risk — recovering up to 90% of unpaid invoices so your business survives even when your buyer doesn't pay.
Trade & Credit Insurance · Receivables Protection · Non-Payment · Buyer Default · Whole Turnover · Domestic & Export
Trade Credit Insurance (TCI) — also called credit insurance or debtor insurance — protects manufacturers, exporters, traders, and service providers against the risk of non-payment of trade receivables by their buyers. When a buyer becomes insolvent, defaults on payment, or is prevented from paying due to political events in their country, TCI covers up to 90% of the unpaid invoice value. As defined by IRDAI, trade credit insurance covers suppliers against the risk of non-payment by buyers situated in the same country (domestic risk) or another country (export risk) due to insolvency, protracted default, or political risk. Under IRDAI regulations, trade credit insurance is sold on a whole turnover basis — covering all trade receivables from all buyers, not selected individual accounts.
Full coverage when a buyer is formally declared insolvent through judicial or administrative proceedings — bankruptcy, winding up, court-supervised restructuring. Triggers immediate claim without waiting for payment to become overdue beyond the waiting period.
INSOLVENCYCoverage when a buyer simply stops paying — without formal insolvency — after a waiting period (typically 90–180 days from due date). The most common claim type in India's domestic trade credit market, particularly for MSME suppliers to large corporate buyers.
DEFAULTFor export receivables, covers non-payment due to causes beyond the buyer's control — government payment restrictions, foreign exchange moratoriums, import licence cancellations, war, and civil disturbance in the buyer's country. Available only for export transactions to approved countries.
POLITICALIRDAI regulations allow indemnity of up to 90% of the insured receivable (95% for MSME political risk), ensuring the seller retains an element of risk (the remaining 10%) to maintain discipline in credit extension decisions. The insurer absorbs the catastrophic tail risk.
90% COVERUnder IRDAI regulations, TCI must cover all trade receivables from all buyers — not selected individual accounts. This prevents adverse selection and ensures the insurer covers the full buyer portfolio, enabling better risk pooling and competitive premiums.
WHOLE TURNOVERTCI insurers continuously monitor the financial health of your buyers. This provides advance warning of buyer financial stress — allowing you to reduce exposure before a buyer fails rather than discovering the problem only when an invoice goes unpaid.
MONITORINGThe 3 Core Risks Covered by Trade Credit Insurance
Trade credit insurance covers three distinct categories of non-payment risk. All three may affect domestic trade, but political risk is available only for export transactions. The IRDAI definition clearly delineates all three categories.
Insolvency covers non-payment where the buyer has formally been declared unable to pay their debts through a judicial or administrative process. As defined by IRDAI, insolvency means a judicial or administrative procedure whereby the assets and affairs of the buyer are made subject to control by a court-appointed person or body for the purpose of reorganisation, liquidation, or rescheduling of debts.
Insolvency triggers in India:
• IBC (Insolvency and Bankruptcy Code) proceedings: A Corporate Insolvency Resolution Process (CIRP) initiated against the buyer under the IBC 2016, leading to liquidation or resolution plan
• Voluntary winding up: The buyer's shareholders and directors resolve to wind up the company
• Court-ordered winding up: A court orders the winding up of the company following a creditor petition
• Overseas insolvency: For export buyers, insolvency declared in the buyer's home jurisdiction (Chapter 11/7 in the US, administration in the UK, similar procedures in Europe and Asia)
Claim trigger: When insolvency is formally declared, the claim trigger activates immediately — the waiting period (used for protracted default) is typically reduced or eliminated for formal insolvency events. The insured must prove the outstanding invoice amount, the buyer's insolvency declaration, and that the goods/services were duly delivered. The insurer verifies the insolvency event and processes the claim.
Real-world example: In the post-COVID period, numerous Indian MSMEs supplying to travel and hospitality sector companies faced catastrophic losses when hotel groups and travel companies entered IBC proceedings. A single insolvent hotel group client with ₹50 lakh in outstanding invoices could represent an existential threat to a small supplier without TCI protection.
Protracted default covers non-payment where the buyer simply stops paying — without a formal insolvency declaration — after a defined waiting period from the invoice due date.
How protracted default works:
• The buyer receives goods/services and an invoice with agreed payment terms (e.g., net 60 days)
• The payment due date passes without payment
• After a waiting period (typically 90 to 180 days from the original due date, as specified in the policy), the unpaid invoice qualifies for a protracted default claim
• The insured must have exhausted reasonable collection efforts and notified the insurer of the overdue payment within the specified timeframe
Why protracted default is the most common claim type:
Formal insolvency (IBC proceedings, court winding up) is a declared event that is publicly known. Protracted default is far more common and more insidious — the buyer continues to exist and operate but simply does not pay, often for months or years, leaving the supplier in limbo. For Indian SME suppliers to large corporate buyers who dominate the payment terms (often extending to 90–120 days), the risk of protracted default is particularly acute.
ECGC's experience (for context): In ECGC's primary survey, the most important risk that Indian exporters sought protection from was protracted default by the buyer, followed by buyer insolvency. This reflects the reality that most trade losses arise not from formal bankruptcy but from buyers who simply stop paying while remaining operational.
The waiting period's significance: The waiting period is not a delay in coverage — it is a defined trigger point. Once the waiting period expires and the invoice remains unpaid, the claim is valid. The insurer processes the claim based on the outstanding invoice amount, proof of delivery, and evidence that the payment is genuinely overdue and not disputed.
Political risk covers non-payment that occurs not because the buyer is unable or unwilling to pay, but because a government action or political event in the buyer’s country prevents the payment from being made or transferred.
Political risk events covered:
• Government-imposed payment restrictions: The buyer’s government imposes a moratorium on payment of foreign currency debts, preventing the buyer from remitting payment to the Indian exporter
• Foreign exchange restrictions: The central bank of the buyer’s country restricts the availability of foreign exchange, preventing the buyer from purchasing the currency needed to pay
• Import licence cancellation: A valid import licence is revoked after shipment but before payment, making it impossible for the buyer to legally receive or pay for the goods
• War, civil war, and civil disturbance: Armed conflict or civil unrest in the buyer’s country disrupts the banking system or physically prevents payment transfer
• New import restrictions: Sudden imposition of import bans or severe tariff increases after the contract is signed but before payment
• Buyer’s government delay: Where the buyer is a government entity or quasi-government buyer that imposes unreasonable payment delays due to bureaucratic or political reasons
Political risk availability: Political risk cover is available only for buyers outside India, in countries specifically approved at the proposal stage. ECGC maintains a country risk classification (Open Cover, Restricted Cover, No Cover) for each country. Private insurers also assess country risk at underwriting. Countries in high geopolitical risk zones (conflict zones, sanctioned countries) may be excluded or attract significant premium loadings.
MSME political risk enhancement: Under IRDAI guidelines, MSMEs can access up to 95% indemnity for political risk claims (vs. the standard 90%), recognising the limited capacity of smaller exporters to absorb even 10% of a large political risk loss.
Whole Turnover, Credit Limits, Indemnity & Buyer Monitoring — How TCI Works
Trade credit insurance is not a simple one-size-fits-all policy. It is a dynamic risk management programme involving continuous buyer assessment, credit limit management, and disciplined reporting. Understanding how TCI works operationally is essential before purchasing.
Under IRDAI regulations, trade credit insurance in India must be placed on a whole turnover basis — meaning the policy must cover trade credit receivables from ALL buyers (not selected individual buyers). IRDAI allows one limited exception: a seller may take TCI for a particular segment, product, or country, but only if the policy covers the WHOLE of that segment's or country's credit turnover.
Why whole turnover is mandatory:
Without the whole turnover requirement, sellers would insure only their riskiest buyers (adverse selection), making TCI unviable for insurers. By requiring all buyers to be covered, the insurer benefits from the full risk pool — including the safe, creditworthy buyers who cross-subsidise the riskier accounts — making TCI commercially sustainable and affordable.
Practical implication: When you take TCI, you must declare your entire buyer portfolio — domestic buyers, export buyers, key accounts, and smaller accounts. You cannot pick and choose which invoices or which buyers to insure. The premium is calculated on your total insured turnover, not on selected accounts.
IRDAI rule on buyer assessment: The insurer must assess the credit risk of any buyer who contributes more than 2% of the total turnover of the policyholder — ensuring that the largest exposures in the portfolio receive formal underwriting scrutiny.
The core operational mechanism of TCI is the credit limit — the maximum amount that can be covered for each individual buyer:
Granted credit limit: After reviewing a buyer's financial health, payment history, and credit profile, the insurer grants a credit limit for that buyer. This is the maximum amount of outstanding invoices that can be insured at any time for that specific buyer. Transactions up to this limit are insured; amounts above the limit are the insured's own risk.
Discretionary limits: For well-known buyers in approved countries (or for domestic buyers meeting creditworthiness criteria), the insured may be given discretionary limits — the ability to extend credit up to a defined threshold without first obtaining specific insurer approval for each buyer.
Maximum liability amount (per policy): In addition to individual buyer credit limits, the policy has an overall maximum liability — the total maximum loss payable under the policy across all buyers in a policy year. If aggregate losses exceed this maximum, claims are capped at the policy maximum.
Credit limit management discipline: The discipline of managing credit within approved limits is one of the most valuable disciplines TCI introduces into a business. Before extending credit to a new buyer, the insured must check whether the buyer is within the insurer’s approved limit. The insurer’s credit assessment provides independent verification of buyer creditworthiness — often more rigorous than the seller’s own assessment.
TCI does not cover 100% of the loss — the insured retains a portion (the “first loss” or co-insurance percentage) to maintain credit discipline:
Standard indemnity ratios:
• Commercial risk (insolvency + protracted default): up to 90% of the insured receivable
• Political risk (standard): up to 90% of the insured receivable
• Political risk for MSMEs: up to 95% of the insured receivable
Example — standard commercial claim:
Outstanding invoice: ₹50 lakh; Credit limit approved: ₹50 lakh; Policy indemnity: 90%
Claim settlement: ₹50 lakh × 90% = ₹45 lakh paid by insurer
Insured bears: ₹5 lakh (10% self-retention)
No Claim Bonus: ECGC and other TCI insurers offer a No Claim Bonus (NCB) of 5% per claim-free year, up to a maximum accumulated NCB of 50%. This significantly reduces premium over time for businesses with good credit discipline.
Premium basis: TCI premium is calculated as a percentage of the insured annual turnover — typically 0.1%–0.5% for domestic trade and 0.3%–1.2% for export trade, depending on buyer risk profile, country risk (for exports), claims history, and payment terms. For an MSME with ₹5 crore annual insured turnover, premium might be ₹50,000–₹2 lakh per year — protecting against potentially catastrophic receivables losses from a single buyer default.
Beyond loss compensation, TCI provides a continuous buyer intelligence service:
Proactive buyer risk monitoring:
TCI insurers maintain global and domestic buyer databases with financial health indicators, payment behaviour data, and credit event alerts. When a buyer’s risk profile deteriorates, the insurer may:
• Reduce the approved credit limit (with notice)
• Issue a credit limit suspension (immediate, when serious risk is identified)
• Notify the insured to take protective action (reduce outstanding, request advance payment, demand additional security)
Value of early warning: The insurer’s early warning of buyer financial stress — often before the seller becomes aware of a problem — gives the insured the opportunity to reduce exposure, accelerate collection, and limit the loss before it crystallises into a claim. For global TCI insurers, the buyer monitoring database covers over 80 million companies worldwide, providing real-time intelligence unavailable to individual Indian exporters.
Trade enablement: Paradoxically, knowing that receivables are insured allows businesses to take on more credit risk in a controlled way. A business that was previously too risk-averse to extend 60-day credit to a new buyer can now do so confidently, knowing that the TCI policy provides a safety net. This allows faster growth and better competitive positioning on payment terms.
How to Structure Your TCI Policy — Limits, Reporting & Premium
TCI requires active ongoing management — monthly declarations, overdue payment notifications, and credit limit management. Understanding these obligations before taking the policy prevents inadvertent claim invalidation.
| Feature | Domestic TCI | Export TCI |
|---|---|---|
| Insurer options | Private insurers + the insurer | ECGC (government, primary) + Private insurers |
| Risks covered | Insolvency + Protracted Default only (no political risk for domestic buyers) | Insolvency + Protracted Default + Political Risk |
| Typical indemnity | Up to 90% (commercial risk) | Up to 90% (95% for MSME political risk) |
| Waiting period | 90–180 days from due date (protracted default) | 90–180 days (protracted default); typically 30–90 days for political risk |
| Monthly declaration | Monthly turnover declaration required (by 15th of following month) | Monthly shipment declaration required (by 15th of following month) |
| Overdue notification | Must notify insurer of invoices overdue beyond 30–60 days | Must notify insurer of bills unpaid beyond 30 days past due |
| Premium basis | % of insured domestic turnover (0.1%–0.5%) | % of insured export turnover (0.3%–1.2%), varies by country |
| NCB available | Yes — 5% per claim-free year, up to 50% maximum | Yes — 5% per claim-free year, up to 50% maximum |
Failure to comply with reporting obligations is one of the most common reasons TCI claims are rejected. The following must be rigorously maintained:
• Monthly turnover declaration: By the 15th of each month, declare the previous month’s credit sales to all insured buyers. Premium is adjusted quarterly or annually based on actual declarations.
• Overdue payment notification: Any invoice that remains unpaid beyond a defined number of days past the due date (typically 30–60 days) must be declared to the insurer by the 15th of the following month. Failure to notify overdue invoices within the specified timeframe can invalidate the claim for those specific invoices.
• Credit limit compliance: All shipments/supplies must be within the approved credit limit for each buyer. Supplies made beyond the approved limit are not covered and claims for them will be rejected.
• No changes to payment terms without insurer knowledge: If you agree to an extension of payment terms with a buyer (e.g., extending from 60 days to 90 days), you must notify the insurer. Extending terms without notification can be treated as a material change that may affect coverage.
TCI premium is among the most competitive insurance products per rupee of protection:
Premium ranges:
• Domestic TCI: 0.1%–0.5% of insured turnover per annum
• Export TCI (low-risk countries): 0.3%–0.6% of insured turnover
• Export TCI (medium-risk countries): 0.5%–0.9% of insured turnover
• Export TCI (high-risk countries): 0.8%–1.5%+ of insured turnover
Example — SME exporter with ₹5 crore insured turnover:
Premium at 0.3% = ₹1.5 lakh per year
Single protected claim of ₹50 lakh = ₹45 lakh recovery (90%)
Premium for 30 years recovered in one claim
No Claim Bonus: 5% reduction per claim-free year, accumulating up to 50%. A company with 10 consecutive claim-free years pays half the base premium — rewarding good credit management and buyer selection.
Processing fee: ECGC charges ₹15,000 processing fee for whole turnover policies (non-refundable). Private insurers have their own fee structures.
Which Businesses Need Trade Credit Insurance
Any business that sells goods or services on credit terms has trade receivables risk. TCI is particularly important for businesses with high buyer concentration, thin margins, large outstanding balances, or export exposure to politically sensitive markets.
How to File a Trade Credit Insurance Claim
TCI claims require early action — waiting too long to notify the insurer of overdue invoices is the most common reason valid claims are rejected. The moment an invoice becomes significantly overdue, begin the claim notification process.
The claim process begins BEFORE the claim is formally filed:
• Monitor your debtors daily: The first sign of trouble is usually a buyer who goes silent, misses a promised payment date, or suddenly requests a payment extension. These early warning signs should trigger immediate action.
• Overdue notification to insurer (mandatory within specified period): Most TCI policies require the insured to notify the insurer of any invoice that remains unpaid beyond 30–60 days past the due date. This notification must be submitted by the 15th of the following month. Missing this notification deadline can void the claim for that specific invoice.
• Loss minimisation steps (mandatory): The insurer requires the insured to take all reasonable steps to minimise the loss — including sending demand notices, engaging with the buyer to understand the reason for non-payment, and initiating formal collection action. The insurer will not pay a claim where the insured was passive in pursuing the buyer.
• Do not grant extensions without insurer approval: If a buyer requests additional time to pay (beyond the original due date), do not grant this informally. Any extension of payment terms must be agreed with the insurer — granting unauthorised extensions can affect the waiting period for protracted default.
Once the waiting period has elapsed (for protracted default) or insolvency has been declared:
Documents required for a TCI claim:
• Completed claim form
• Copy of the commercial invoice(s) for which the claim is being made
• Proof of delivery — Lorry Receipt (LR), Railway Receipt (RR), Bill of Lading (for exports), delivery acknowledgement, or other proof that goods/services were delivered
• Copy of the buyer’s purchase order / contract establishing the credit terms
• Recall notice / copy of the legal/demand notice sent to the buyer
• Correspondence with the buyer showing attempts to collect
• Proof of action initiated for recovery (demand notice, lawyer’s notice, IBC petition, court proceedings)
• Bank statement showing non-receipt of payment
• For insolvency claims: copy of the official insolvency declaration (IBC admission order, court winding-up order, or overseas insolvency declaration)
• Credit limit approval letter from the insurer for the specific buyer
• Monthly declarations submitted for the claim period (to confirm compliance)
The insurer assesses the claim:
• Verifies that the claim falls within the approved credit limit for the buyer
• Confirms that monthly declarations were submitted (compliance check)
• Verifies that overdue notification was made within the required timeframe
• Confirms proof of delivery and invoice validity
• Assesses whether the insured took adequate loss minimisation steps
• For protracted default: confirms that the waiting period has elapsed
• For insolvency: verifies the formal insolvency declaration
Settlement: Payment is made at the agreed indemnity percentage (up to 90% for commercial risk). The remaining 10% is the insured’s self-retention.
Subrogation: Once the insurer pays the claim, they acquire subrogation rights — the right to recover the outstanding amount from the buyer on their own account. Any subsequent recovery by the insurer from the buyer is shared between the insurer and the insured in proportion to their respective interests (insurer 90%, insured 10%).
Recovery obligation: If the insured subsequently recovers any amount from the defaulting buyer, they must immediately pay to the insurer their proportionate share. Concealing or retaining recovery proceeds received after a TCI claim settlement is a serious policy condition breach.
Probitas manages the claims notification process, documentation assembly, and insurer liaison to ensure timely and accurate claim settlement. Call 022 4302 0000.
What Trade Credit Insurance Does NOT Cover
Understanding TCI exclusions is critical — particularly the exclusion of related-party transactions, disputed transactions, and the seller's own performance failures.
Transactions between the insured and its subsidiaries, associates, group companies, or related parties (where the insured has direct or indirect interest or common management) are excluded. The policy specifically requires no related-party relationship between insured and buyer.
If the buyer withholds payment because of a genuine dispute over the quality of goods, quantity, price, delivery terms, or other contractual matters — the unpaid invoice does not qualify for TCI coverage. Only clear, undisputed debts are covered.
If the seller fails to fulfil the terms of the contract (short delivery, wrong specification, late delivery breaching contract terms) and the buyer withholds payment as a result — this is excluded. TCI covers the buyer's failure to pay, not consequences of the seller's own breach.
Loss arising purely from exchange rate movement between contract date and payment date (currency risk) is excluded. TCI covers non-payment by the buyer, not the financial impact of currency depreciation on the invoice value.
Outstanding amounts owed by State or government departments, institutions, or organisations that cannot be declared insolvent under Indian law are typically excluded or subject to specific terms. Government buyers cannot be formally declared insolvent, making standard insolvency coverage inapplicable.
Loss or damage to goods that can be covered by general insurance (marine cargo, property insurance) is excluded from TCI. TCI covers the credit risk of non-payment — not physical loss of the goods themselves. Goods in transit must be covered separately under marine cargo insurance.
Sales on consignment basis (where the consignee is the agent of the seller and sells on the seller's behalf) are typically excluded under standard TCI, because the consignee does not owe the seller a debt — they owe only the proceeds of actual sales made.
Any outstanding amount that exceeds the approved credit limit for that specific buyer is not covered. The insurer's liability is strictly limited to the granted credit limit per buyer. Supplies made without obtaining a valid credit limit from the insurer are uninsured.
Trade Credit Insurance is subject to individual underwriting assessment for each policyholder and each buyer portfolio. Coverage, indemnity percentages, credit limits, premium rates, waiting periods, and reporting obligations vary by insurer, policy type, buyer profile, country (for exports), and claims history. ECGC and private insurers have different policy terms. The IRDAI guidelines referenced set the regulatory framework; specific policy terms may vary. Probitas Insurance Brokers Pvt. Ltd. · IRDAI Lic. No. 528.
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By submitting you agree to our Privacy Policy and Terms & Conditions. Trade Credit Insurance is subject to individual underwriting assessment of your buyer portfolio, turnover, payment terms, and credit management practices. Coverage under IRDAI-regulated whole turnover basis. Political risk available for export transactions only, in approved countries. Probitas Insurance Brokers Pvt. Ltd. · IRDAI Lic. No. 528.