On a whole-turnover policy every buyer on the ledger carries a credit limit, and that limit — not the headline policy limit — is the number that gets paid if the buyer fails. A supplier who reads the schedule once at inception and files it is carrying exposure it believes is insured and is not, which is the most common way a good policy produces a bad outcome.
Limits arrive in two ways. A named limit is one we underwrite on request, on the buyers that matter: the largest ten names usually account for most of a ledger and all of the anxiety. Underneath them sits the discretionary limit — an amount the supplier may extend to any buyer on its own credit information, without asking us, provided the policy’s conditions are met, which normally means a clean trading history with that buyer and nothing overdue beyond the reporting period. Most of a ledger runs on the discretionary limit. Most of a claim comes off a named one.
A limit is not a term of the policy. It can be reduced or withdrawn for future deliveries, and it usually is when a buyer’s payment behaviour changes, which is precisely when the supplier least wants to hear it. The asymmetry is the part to understand: goods dispatched before the notice arrives stay covered at the old limit, and goods dispatched after it are covered at the new one. A withdrawal is therefore something to act on the day it lands rather than at the month end, because all of the exposure it creates is in the deliveries not yet made.
What decides the amount is unglamorous — the buyer’s filed accounts and how recent they are, payment behaviour on this ledger and on other insured ledgers, the sector it trades in, and the size of the request against the trade it actually supports. That last one is worth saying plainly, because the request itself is evidence. A limit of €2m asked for against €300,000 of monthly trade reads as an aspiration rather than a requirement, and it gets a shorter answer than a request that matches the invoices would have got.
When a loss does happen, two published numbers decide what arrives. The indemnity is 85–90% of the insured debt rather than the whole of it, and that uninsured slice is deliberate: it keeps the credit decision with the person who knows the customer. Protracted default carries a waiting period of 120 days from the due date, where an insolvency is paid on proof of the event. Collections start well before either, because a debt collected is not a claim and it leaves the trading relationship intact.
Which leaves the housekeeping, and the housekeeping is what decides most credit claims. Declare turnover monthly. Report overdues when the policy says to rather than when they become uncomfortable. And do not extend a buyer’s terms beyond the maximum the policy allows without an endorsement — 90 days agreed and quietly run to 120 is outside the cover, and it is a much sadder conversation than a declined limit request would have been.
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.
