A deferment account lets an importer pay duty and VAT monthly rather than consignment by consignment, and the account is only as large as the guarantee behind it. The guarantee is usually sized once, at application, against the volumes the business had at the time. Nobody sets a reminder to revisit it.
What we then see, and we see it several times a year, is a consignment held mid-month because the deferment account has hit its ceiling. The business has not deteriorated; it has grown, or it has had a seasonal peak, or duty rates on part of its range have moved. The guarantee has stayed where it was.
Sizing to the average monthly liability is the mistake underneath it. A guarantee has to carry the peak month, and for anything with a seasonal profile — building materials, agricultural inputs, anything that ships ahead of a retail quarter — the peak can be a long way above the average. Where a business runs both a deferment account and transit movements, the two exposures need to be counted together rather than netted in someone’s head.
We review comprehensive guarantee limits annually against declared volumes for facilities we hold, and we will look at an interim increase inside a week where the trade data supports it. It is a small piece of administration that prevents an expensive kind of standstill, and it is much easier to do in a quiet month than in the week a container is sitting at a port.
Written by the underwriting team at FDI Insurance d.a.c., Dublin. This piece is general information, not advice on any particular transaction — and it is not an offer of insurance.
