The main types of payment between trading parties
Lack of working capital is one of the main difficulties preventing companies from expansion of their activity, improving production quality as well as starting the new competitive production, even local and foreign market have enough demand for that product. Particularly need for working capital is important, when trading partners has trade credit terms.
Scheme of Credit insurance
Under the competitive circumstances Suppliers are forced to give favorable payment conditions for buyers, therefore the growth of trade receivables is the main reason influencing lack of Supplier‘s current assets and risk, that buyer will not be able to pay in time for the received production or services. In order to minimize the credit risk for the Suppliers, Coface offers credit insurance scheme, which can include and factor-current assets backer..
Credit insurance scheme with factoring possibility
1. Supplier makes credit insurance contract with Coface;
2. Supplier sells goods to Buyer under the credit periods terminated in the sales contract;
2.1. Supplier can approach to Bank for factoring (a loan) giving the bank the insured debtors list;
2.2. Factor, on the ground of insured customers, gives the sponsorship to the Supplier;
3. Buyer pays for the goods and transfers money for Supplier;
3.1. Buyer pays for the goods and transfers money to Factor under the factoring agreement;
4. If Buyer does not pay, Coface pays out the indemnification for Supplier;
4.1 If buyer can not pay for the goods, Coface pays out the indemnification for Factor, if supplier financed insured debts.
Insurance (Supplier and Coface)
When Supplier sends goods for the buyer with credit period nonpayment risk of buyer arises to. Supplier can approach for credit insurance to Coface if there is a need to reduce the nonpayment risk of the buyers.
Coface makes credit insurance contract with Supplier under the certain insurance conditions as well as each buyer’s credit rating appraisal and settlement of certain the credit limit. Coface commits to cover up to 90 % of Supplier’s losses raised due to insolvency or nonpayment of the insured buyer.
Credit insurance with sponsorship opportunity (Supplier and factor)
Banks in their practice finances trade agreements by pledging trade receivables. The source for covering the financed trade agreement is trade receivables indicated in the trade agreements.
Supplier pledge to Factor insured receivables. Special account is opened for Supplier to get buyers fees. Supplier together with credit insurance contract gives Factor Coface’s confirmed credit limits for the buyers. Supplier indicates bank account to the buyer where the buyer must transfer payment for received goods. If Supplier wants to get money for invoices, they must be provided to the Factor. Factor finances supplier’s invoices within the amount of buyers credit limits estimated by Coface.
Guarantee to cover overdue payment (Coface and factor/Supplier)
In case of Buyer’s nonpayment for Supplier Coface is liable to cover losses to the Factor or supplier in the range of estimated credit limit and under insurance conditions. This means that Factor can be indicated as beneficiary in credit insurance contract.
If Supplier does not use factoring services the Supplier is indicated as beneficiary in credit insurance contract. In this case, insurance indemnification due to the buyer’s nonpayment/ insolvency is paid to Supplier.
