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Discretionary Credit Limit - an underappreciated feature of trade credit insurance

A large percentage of trade credit insurance policies offer a discretionary credit limit (“DCL”) feature, allowing the policyholder some level of autonomy when setting credit limits for their buyers. Each policy has different DCL guidelines; however, generally, this feature is targeted at smaller credit exposures and can be approved based on prior payment experience with the buyer and/or third-party credit information received from a reputable credit reporting agency.

The key focus when using DCL coverage is that you must have sufficient information to justify your credit decision. If the client is a new customer or a customer that is new to open account payment terms, what steps did you take to justify extending credit? Often times, depending on the insurance policy requirements, obtaining a favorable business credit report on the buyer or obtaining a favorable trade reference from another supplier will provide the justification and fulfill the policy requirements.

If the client is an existing customer with prior open account payment experience, oftentimes you can use your own ledger experience with the client to justify the extension of credit. When using this feature, the client must show a history of timely paying similar amounts. Most policies will allow for certain levels of increased exposure above the previously high credit, up to a defined limit. Once the maximum DCL limit is achieved, anything above that amount will require special approval for the subject buyer.

A DCL is a valuable feature offered by many trade credit insurance providers - allowing the insured to quickly approve credit to new customers and extend credit limits to existing customers while keeping the approval authority within their own credit department. This can help companies expand sales with existing customers and approve credit sales to new customers without increasing the risk of bad debt.

While the DCL feature is one of the more valuable features of a trade credit insurance policy, it is also one of the most misunderstood. Failure to comply with the policy DCL requirements is one of the main reasons claims are denied.

If you would like to learn more about the DCL and the benefits it can offer your company, please connect with Impello Global at

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