Typically, non-payment solely due to commercial disputes between you and the buyer is NOT covered by standard credit insurance. Let’s understand why:
Focus of Credit Insurance:
- Credit insurance primarily protects against unforeseen risks of non-payment like insolvency or protracted default.
- Commercial disputes fall within the realm of potential business disagreements controlled by your contractual terms.
Exclusions:
Most credit insurance policies have specific exclusions for:
- Quality Disputes: Claims arising from disputes over the quality of goods or services delivered.
- Contractual Breaches: Non-payment alleged by the buyer due to breaches of your contractual obligations.
- Pre-existing Disputes: Situations where the buyer had a known payment issue or dispute before you placed them on credit insurance cover.
Why Disputes Are Usually Excluded:
- Moral Hazard: Covering disputes could encourage lax business practices or making claims for issues within the seller’s control.
- Insurer’s Role: Credit insurers are not designed to resolve contract disputes or enforce agreements between businesses.
How to Mitigate Risk of Disputes:
- Clear Contracts: Have well-defined contracts outlining quality standards, delivery, and dispute resolution mechanisms.
- Due Diligence: Thoroughly vet buyers for reputation and history of disputes before extending credit.
- Maintain Documentation: Keep meticulous records of communication and agreements with the buyer.
- Seek Legal Counsel: If a serious dispute arises, consult an attorney to protect your interests.
Alternative Considerations:
- Specialized Insurance: Some limited coverage for contract disputes might exist in very specific industries or legal jurisdictions.
- Factoring: If you’re worried about payment delays even due to disputes, factoring can provide immediate cash without the dispute-related exclusions.