If you’re reading this article, you probably feel you already have a good grasp of dummy trade credit insurance (TCI) terminology. But sometimes our understanding of a term might not actually align with its precise meaning.

Trade credit insurance solutions have evolved to meet the demands of an increasingly complex trading environment. These developments have resulted in a growing number of specific credit insurance terms. And not only can the terms be nuanced, but their practical meaning can vary depending on where your business is conducted.

As Head of Commercial Underwriting at Allianz Trade in France, I ensure that clients’ understanding of these key terms is aligned within their economic environment. Here are four of the most used terms, and what they really mean.
This is the contractually defined time between when goods are delivered and when an dummy invoice  is issued. This timeframe can be up to 30 days, but must comply with local regulations. If the maximum invoicing term is exceeded, the debt cannot be insured. Once the seller issues an invoice, the terms of payment kick in – the clock starts for the buyer to pay its debt.

Also known as credit terms, this is the payment time limit specified on an invoice. In other words, the number of days a buyer can wait before paying for the goods or services after receiving the invoice: if a supplier invoice states 90 days, the buyer is approved for up to 90 days’ credit.

Payment terms can vary greatly depending on the location of the buyer and seller – but country legislation must also be taken into account. The French Loi de Modernisation de l'Économie (Modernization of the Economy Act), for example, prohibits businesses from issuing invoices with payment terms of more than 60 days (there are some rare exceptions).

This is the maximum due date extension allowed under a policy when granting a credit term longer than originally agreed.

It’s necessary to understand the buyer’s specific needs when defining appropriate credit terms. We examine the country where the sale is made to identify risk and payment habit and trends; the riskier the country, the shorter the extension should be. However, we can also consider the buyer’s circumstances and credit history.

Until the end of the MEP, a business can trade as usual. However, if a buyer fails to make payment for delivered goods by the end of the MEP, the state of default kicks in. Once in a state of default, a business should halt new shipments to that buyer, as they will not be covered by insurance.  

Imagine I sell toys to various retail stores in France, Germany and Spain, delivering on a monthly basis. I raise an invoice at the end of each month – my invoicing period is 30 days.

To comply with country legislation, my invoice must have 60-day payment terms for buyers in France. But for Spanish and German buyers, I decide to deliver at higher volumes to save on shipping costs and therefore raise an invoice on 90-day terms of payment.

When it comes to dummy extending payment terms, I am aware that my Spanish buyer – while they always pay – frequently pays late. As a result, I need a maximum extension period of 90 days. If this invoice is not paid within 180 days (90 days + 90 days), I will discontinue delivery to this buyer because we have reached a state of default. If I ship new goods at this stage, I assume the risk of non-payment at my own expense.

Understanding how key TCI terms may differ around the world helps ensure you can run your businesses smoothly, from anywhere. As specialists in TCI, Allianz Trade’s global network of experts is ready to provide solutions to help you manage risk and grow your business safely.

Nicolas Marchenoir

Head of Commercial Underwriting,
 Allianz Trade France