Page 110 - DMGT546_INTERNATIONAL_TRADE_PROCEDURE_AND_DOCUMENTATION

Unit 5: Methods of Financing Exporters and Business Risk Management

5.5.1 Standard Policy Notes

Standard Policy offers to cover risks in respect of all shipments on short-term credit (credit not
exceeding 180 days) by exporters with an anticipated annual turnover of more than ` 50 lakhs.
This policy is also called Shipment (Comprehensive Risk) Policy or SCR. Standard Policy covers
the following commercial and political risks from the date of shipment:

Commercial Risks

Insolvency of the buyer.
Failure of the buyer to make the payment due within a specified period, normally four
months from due date.

Buyer’s failure to accept goods, subject to certain conditions.
Political Risks

Imposition of restriction by the government of the buyer’s country or any government
action, which may block or delay the transfer of payment made by the buyer.

War, civil war, revolution or civil disturbances in the buyer’s country.
New import restrictions or cancellation of a valid import licence in the buyer’s country.
Interruption or diversion of voyage outside India resulting in payment of additional
freight or insurance charges, which cannot be recovered from the buyer.
Any other cause of loss occurring outside India, not normally insured by general insurers,
and beyond the control of both exporter and buyer.
5.5.2 Turnover Policy

Turnover policy is a variation of the standard policy for the benefit of all large exporters who
pay a total premium of ` 10 lakhs or more in a year. It envisages projection of the export
turnover of the exporter for a year and the initial determination of the premium payable on that
basis, subject to adjustment at the end of the year based on actuals. The policy provides additional
discount in premium with an added incentive for increasing exports beyond the projected
turnover and also offers simplified procedure for premium remittance and filing of shipment
information. It also provides for higher discretionary credit limits on overseas buyers, based on
the total premium paid by the exporter under the policy. The turnover policy is issued with a
validity period of one year. In most other respects, the provisions relating to standard policy
apply to turnover policy.

The holders of turnover policy need not submit monthly declarations of shipment. Instead, they
have only to submit a statement of shipments made during the quarter in a prescribed format
within 30 days of the end of the quarter.

The basic premium rates applicable for the standard policy will apply to the turnover policy
also. However, an exporter holding a standard policy opting for turnover policy will be entitled
to an additional discount of 10% over and above the ‘no claim bonus’ which he enjoys under the
standard policy, subject to a minimum total discount of 20%. If an exporter not holding the
standard policy avails of the turnover policy, he will be entitled to a discount of 20%. In case of
no claims in future, the exporter will be entitled to a further ‘no claim bonus’ and consequently
total discount. Thus, the total discount could go up to 60%.

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