The benefits of credit insurance for companies are numerous. They include:
Credit risks associated with buyers when selling locally and associated with buyers’ and country risks when exporting.
The biggest component in working capital is trade receivables. Insuring it is integral for growth.
When your buyers do not pay on time, credit insurance allows you to protect your cash flow.
With a trade credit insurance policy in hand, banks will provide better borrowing terms.
Export Credit Insurance covers the risks associated with a buyer, to whom a policyholder is selling to on credit. It protects against the non-payment by the respective buyers. Non-payment may be due to buyer’s insolvency, protracted default, non-acceptance of goods or economic and political conditions that are out of the control of the policyholder and buyer.
Credit Oman will not cover disputes between the buyer and the policyholder regarding the supply e.g. quantity, quality, packing, etc., unless the policyholder gets a court ruling in his favour in buyer’s country. Also, it does not cover causes inherent in the nature of goods, default of any agent of the policyholder or of the collecting bank, and fluctuation in the exchange rate.
On an average, 40% of company’s assets are tied up in the form of commercial debt. All it takes for an otherwise well-run business to become insolvent is for one major customer not to meet its payments. Even smaller debts can have a destructive effect. For example, if your profit margin is 5% and your client’s debt is just RO.10000, your company will have to achieve additional sales of RO.100000 just to make up for the loss. A credit insurance policy from Credit Oman can protect from the consequences of such an event.
Credit Oman may restrict or refuse cover on certain buyers for various reasons. For example, it could happen if the buyer is not sufficiently credit worthy based on their financial standing or if his total commitment with other suppliers are already too high in relation to its size and financial capability or we may have recorded or received adverse payment experience or disputes with those buyers. Thus Credit Oman is of the view that such restriction of cover on buyers will safeguard the interest of the policyholders against possible losses. However, Credit Oman always tries to decide on cover as objectively and pragmatically as we can in order to promote and enhance Omani exports while evaluating the risks on buyers.
Not necessary as the credit limit is “revolving” provided that the maximum credit outstanding at any given time does not exceed the credit limit amount already approved.
The policyholder should ensure that the approved buyer whose name and address is shown on the credit limit is the same party with which he/she has entered into the contract of sales. A slight variation in the name of a company can mean another separate legal entity. Should you wish to trade with the buyer’s parent or associate or subsidiary companies, it is necessary for you to send in separate Credit Limit Application (CLA) since members of the buyer’s group of companies are different legal entities. You should also pay particular attention to the amount, the payment terms, the expiry date (if any) as well as any specific conditions shown on it, e.g. the credit limit covers specific shipment only or you must report overdues to Credit Oman immediately or any other endorsement attached to the credit limit approval.
Not necessary. Shipments could be effected over a period of time so that the amount outstanding for goods exported is, at any one time, within the approved limit. In other words an policyholder can undertake contracts of a value greater than that given of your credit limit, since it is revolving.
Cancelled or suspended credit limits continue to be applicable to outstanding debt pertaining to shipments effected prior to the date of cancellation or suspension of credit limit but no future shipments will be covered.
A credit limit does not have expiry date and it remains in force during the validity of the policy as it operates on revolving basis unless any credit limit is canceled and advised by Credit Oman due to adverse information on the buyer or due to unutilization for specific period.
As it is a violation of a specified term of the Policy, Credit Oman, as the insurer, has the right to refuse the business declaration after the stipulated time. Thus, the sales already made will be off cover. Hence, it is highly important that all your sales, whether it is domestic or exports, are declared on time.
If a buyer who is unable to make payment on of the due date and requests for more time to pay the amount, the policyholder should make a good commercial judgment on the request based on facts and circumstances of the case. If it appears that extending the due date of the bill is the proper course of action, then the policyholder should seek the approval of the insurer (Credit Oman), detailing the reasons justifying such action.
Yes, Credit Oman provides credit insurance cover for over 115 countries worldwide and insures domestic sales.
An Irrevocable Letter of Credit provides guarantee / security for receiving your payment of export bills provided the terms and conditions of the letter of credit are strictly complied with. However, certain events of political nature in the buyer’s country could prevent performance of sales contract or transfer of funds. In such circumstances, the Export Credit Policy of Credit Oman provides you protection against such losses.
According to the policy, the premium is payable on actual export and domestic sales made to various buyers on whom credit limits have been issued and not on the credit limit amount. However, Credit Oman charges premium on sales declared by the policyholder in excess of credit limit, due to the fact that those export sales made in excess of credit limit also be automatically covered once previous shipments are paid. If no premium is charged on those sales, it is off cover in accordance with the terms of the Policy in the event of non-payment by the buyer.
The insured percentage is up to 80% of loss against commercial risks and 85% against non-commercial risks.
The credit insurer issues a credit limit for every buyer with whom the policyholder trades. The level of the limit is set at the maximum amount that can be owed by the buyer at any given time. The granted credit limit is the maximum insured credit line for a specific buyer that operates on revolving basis and the policyholder can trade within the approved credit limit throughout the policy period without further reference to the Insurer.
Yes, a Domestic Credit Insurance Policy addresses the payment risks from buyer in the same country.
Credit Insurance Policy is a risk management tool that helps the policyholder to stabilize his/her cash flow and protect his/her trade receivables in the ever-changing competitive and economic business climate. The policyholder can also enhance his/her borrowing power from financial institutions.
Firstly, the amount of the credit limit application should be realistic and close to the credit insured by policyholder’s probable requirements in the foreseeable future.
Second, the policyholder should provide (Credit Oman) with full and correct details of the buyer’s trading style, address and the name and address of his banker.
Third, it is important that the policyholder gives full and actual details of previous trading experience with the buyer.
Fourth, if the policyholder has up to date credit information on the buyer he can attach such reports together with any other additional information to the application.
You can file your claim when you are aware of any adverse information which may affect the payment of your invoices related to credit insured sales. Our Claim and Recovery Department will provide all assistance to you to file a claim and recommend appropriate measures to minimize your losses.
The Export Credit Policy specifies a minimum period of time after which loss is ascertained to indemnify a claim for loss. This particular point of time is known as the “date of ascertainment of loss” which must be reached before any claim is paid.
If a buyer is not in a position to make payment on the due date of the export bill and requests additional time to settle the amount, the policyholder should make good commercial judgment on the request of the buyer based on facts and circumstances of the case. If the policyholder is convinced that extending the due date of the bill is the proper course of action, then the policyholder should seek the approval from Credit Oman, giving in detail, the reasons justifying such an extension.
If the buyer raises any disputes regarding quality of goods exported, the claim for the resultant loss will be considered once the disputes are settled amicably by the policyholder with the buyer or the policyholder obtains judgment in his favour from the court of law in the buyer country.
Where payments are not realized due to exchange transfer delays, claims can be filed with Credit Oman after six months from the date on which the buyer has, after making the payment in local currency, completed exchange control formalities necessary for the transfer of funds to Oman. Where Credit Oman has stipulated a longer waiting period, claims can be filed only after completion of such period.
Notification of all payments not received within two months of their due dates should be sent to Credit Oman on the Overdue Declaration Form. The declaration should be sent on or before the 10th of every month.
Credit Oman has managed to recover 16% of the total claims it has paid to its policyholders since its inception of its operations. This is in line with the average for other emerging ECAs where the recovery ranges between 10% to 20%.
The policyholder is expected to take necessary actions to minimize the possible losses. Action should be prompt and effective.
Credit Oman will not contribute any costs involved in settling disputes. Also, Credit Oman does not contribute any in-house costs and overheads such as administration and travel expenses.
After payment of a claim, Credit Oman has the right to take over the debt, but while it does exercise this right in some instances, it will normally require the policyholder to continue recovery action along the path already agreed with Credit Oman subject to any further requirements it may have.
All proceeds of recovery action must be remitted in full promptly to Credit Oman for allocation. Credit Oman will then allocate a proportion in which the original loss was shared.
Yes, Credit Oman will reimburse the policyholder the legal fees paid to lawyers in the buyer’s country up to the proportion in which liability for the debt has been admitted by Credit Oman. Also, the policyholder should obtain concurrence form Credit Oman to initiate legal action for recovery.
The policyholder should keep Credit Oman informed of all steps already taken towards recovery of amounts in default. Credit Oman will also suggest certain course of action for recovery based on the development and circumstances.
After payment of a claim, Credit Oman has the right to take over the debt, but normally Credit Oman requires the policyholder to proceed with the recovery action along the path already advised and agreed by Credit Oman considering the insured being the contractual party with the buyer for the export sales made.
The policyholder should keep Credit Oman informed of all actions taken to recover amounts in default. Credit Oman also will assist the policyholder towards recovery action and suggest certain course of action based on the development against the action already taken by the policyholder. The policyholder is required to act on the basis of such advice provided by Credit Oman in accordance with the terms of the Export Credit Policy.
The policyholder is required to vigorously pursue recovery action and to keep Credit Oman informed of such action from time to time. As and when any amount is recovered, the amount will have to be shared with Credit Oman in the ratio in which the loss was borne.
Yes. Credit Oman normally reimburses the legal fees paid to the appointed lawyer and the court, in the buyer’s country in the proportion of its liability to the total outstanding debt provided the claim for loss is admitted by Credit Oman. It does not contribute other expenses such as travel expenses, auditor’s fees, translation charges and any overhead expenses, etc. However, Credit Oman is not obliged to share recovery costs, as per the policy. Also, being an insured, you should inform Credit Oman, on the legal fees agreed upon in advance.
The policyholder has a prime responsibility as per the Policy to vigorously pursue recovery action and to keep Credit Oman informed of such action from time to time. As and when any amount is recovered, the amount will have to be shared with Credit Oman in the ratio in which the loss was borne.
In case of recovery expenses, documentary evidence of recovery expenses inquired by the policyholder with the approval of Credit Oman should be furnished to Credit Oman to reimburse the recovery expenses in the same proportion in which losses were apportioned between Credit Oman and the policyholder.
The post-shipment financing allows the policyholders to improve on their liquidity or cash flow position as they get necessary funding from commercial banks through bills discounting of their export receivables and at a concessional interest rate as agreed between Credit Oman and the commercial banks in the country.
Upon receipt of intimation from the policyholder to this effect, Credit Oman would contact the concerned bank to ascertain the reasons for not discounting the export bills which are credit insured under the Policy and endeavor to assist the policyholder. Sometimes, the banks may have some restriction in extending further credit facilities due to past due facilities with them, or with the other banks which are under litigation.
Credit Oman has signed MOUs with most commercial banks operating in Oman under the post-shipment financing program whereby credit insured policyholders can discount their export bills with commercial banks against preferential interest rates, thus reducing their post-shipment financing cost. Credit Oman can also issue pre-shipment export credit guarantees whereby banks are able to provide financing at a pre-shipment stage for working capital needs of policyholders. In addition, Credit Oman’s “Documentary Credit Insurance Policy” allows the commercial banks in Oman to add their confirmation on irrevocable letters of credit after obtaining Credit Oman’s guarantee in order to protect them against the risk of non-payment of an irrevocable letter of credit issued by the importer’s bank. Therefore, these products offered to commercial banks in the Sultanate of Oman will play a great role in the process of encouraging and promoting export insurance.
(1) You must use all reasonable and usual care and skill and take all practical measures, including any measures which may be required by us, to prevent or minimize loss and we shall not be liable for loss if you fail to take all such practicable measures to prevent or minimize loss within a reasonable time after you have learned of the occurrence of a cause of loss or of any event likely to cause loss;
(2) You must promptly notify Credit Oman in writing when you become aware of the occurrence of any cause of loss, or of any event likely to cause loss, or that the Issuing Bank is unable to pay its debts as and when they fall due or that the Issuing Bank is in financial difficulties.
(3) You must provide us with all information and documents that we may require.
The Export Credit Policy is normally recognized by the commercial banks as a valuable form of an additional security. If necessary, the policyholder can assign the benefits of the Policy to his financing bank which allows Credit Oman to pay claims directly to the Bank. Consequently, the credit insured policyholder can enjoy improved financial facilities through relatively lower interest rates.
The risk covered is the failure of a Supplier to pay back the Insured Advance Payment within the Protracted Default Period in case the commercial contract is not fulfilled by the Supplier.
The advance payment or series of advance payments made by the Insured to the Insured’s supplier before the fulfilment of obligation of delivery of goods or rendering of services, as per the terms referred in a legally enforceable contract between the Insured and its Supplier.
The supplier is the entity to which the Insured has made an Advanced Payment for goods or services to be provided as per the Contract.
Suppliers are only those companies the Insurer accepts in the Credit Limit Decision and will not include the following:-
The agreed credit terms and maximum monetary value that the Insured may have at risk at any one point of time with each Supplier.
The end of the period or the date or dates indicated in the commercial contract within which the goods should be delivered, or services should be rendered
The Loss Date for each cause of Loss is as follows:-
The following qualify for the Insured Advance payment: –
The sum of Advances Payments made or paid to the Supplier.
The Insured must send the Claim form:
Credit Oman will pay a claim for an Insured Advance Payment not later than 30 days after the earliest of the following: