Credit Insurance in Dubai & the UAE
What is Credit Insurance?
Credit insurance, one of our Commercial Insurance policies, is a financial risk management tool that protects businesses from non-payment of commercial debts due to insolvency, bankruptcy, or protracted default of buyers. It helps businesses maintain cash flow stability and mitigate risks associated with extending credit to clients.
How Does Credit Insurance Work?
Credit Insurance protects your company against failure of your customers to pay credit debts owed to you. Such situations can arise from insolvency, bankruptcy or simply failing to pay financial obligations, which unfortunately happens more often than one would think or hope for.
When you insure your business against other companies not paying you, you provide leverage for your company to negotiate better credit terms with banks in the form of obtaining more competitive rates since your business will be seen as less risky and protected. It also allows you to extend credit to new customers in order to further grow the business.
Technically, the credit insurer monitors the financial performance of your customers, and then allocates a grade to those customers evaluating how financially healthy they are. This evaluation can become an extensive investigative effort, and based on this risk assessment of your clients, each client is granted a specific limit to which your business with them can be insured. This amount represents the amount you can claim from the insurer should something go wrong. It’s worth mentioning that the limit the insurer places on your client isn’t set in stone and can actually be negotiated with the insurer under most circumstances.
Why Would you Need Credit Insurance?
There are several benefits to obtaining this type of insurance for your business, this includes:
- Managing trade receivables effectively – as receivables can represent up to a third of total assets of a company’s balance sheet, managing them properly will support your sales expansion
- Enhance customer relationship as credit insurance will allow you to extend your business with more clients
- Delivering comprehensive protection against the risk of bankruptcy
- Improving banking relationships and improving access to finance as your business will be seen as less risky
Choosing the most appropriate Credit Insurance policy can be overwhelming and confusing. That’s why it’s best to have a broker such as Petra Insurance by your side at all times to ensure clarity and proper information is provided to receive the maximum efficiency on the money you spend.
Unfortunately, if you don’t get the right advice, it can become an expensive and an unaffordable policy to your business.
Types of Credit Insurance Policies in the UAE
1. Whole Turnover Credit Insurance
- Covers all or most of a company’s receivables against non-payment risks.
2. Key Accounts Credit Insurance
- Protects against non-payment from specific high-value clients.
3. Single Buyer Credit Insurance
- Covers transactions involving one key customer.
4. Political Risk Credit Insurance
- Protects against losses due to political instability, such as government actions, currency restrictions, or war.
5. Export Credit Insurance
- Designed for businesses trading internationally, covering cross-border risks.
Credit Insurance Claims Process in the UAE
Steps to File a Claim:
- Report Non-Payment: Notify the insurer about the unpaid invoice within the claim submission timeframe.
- Submit Supporting Documents: Provide invoices, proof of delivery, contracts, and communication records.
- Insurer Assessment: The insurer reviews the claim and investigates the debtor’s financial status.
- Claim Approval and Payout: If approved, the insurer compensates the business as per the agreed policy terms.
What Types of Risks Does Credit Insurance Cover in Dubai?
- Customer Insolvency: Protection if a buyer goes bankrupt or is legally unable to pay.
- Protracted Default: Coverage when a client delays payment beyond the agreed period.
- Political Risks: Protection against losses from government actions, expropriation, and currency transfer restrictions.
- Commercial Risks: Protection from unexpected financial difficulties affecting a customer’s ability to pay.
What Types of Risks Does Credit Insurance Not Cover in Dubai?
- Disputed Invoices: Claims where the buyer disputes the transaction.
- Pre-existing Debt: Debts incurred before the policy start date.
- Fraudulent Transactions: Coverage does not apply in cases of deliberate fraud.
- Contract Breaches: Losses due to a supplier or buyer failing to meet contractual terms unrelated to payment.
- Natural Disasters: Unless specifically included in the policy, acts of nature like earthquakes or floods may not be covered.
UAE Credit Insurance FAQs
Premiums are influenced by business size, credit exposure, industry risk, customer payment history, and coverage limits.
Yes, policies can be tailored to cover specific buyers, industries, or export markets based on business risk assessments.
Most policies include a waiting period of 30-90 days before claims can be filed for non-payment events.
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