Key conditions to your EDC policy
Your buyer is more than 60 days in default. What should you do? The answer is simple: stop shipping goods. Here’s why: EDC is not liable for the payment of a claim if at the time the goods were shipped, the buyer had been in default of its payment obligations:
- for more than 60 days
- for an amount greater than 10% of the total amount due
In the spirit of minimizing losses, EDC goes even further and states that you have the obligation to discontinue shipping goods to buyers that have been in default for more than 60 days for an amount greater than 10% of the total amount due.
Remember that the due performance of your duties and obligations under the Policy shall be a condition precedent to any liability of the Insurers for the payment of a claim.
It is quite clear that the obligation to discontinue shipment is a condition precedent to any liability of EDC.
Let’s look at 3 examples.
Example 1:
Terms of payment: Net 30 days
| Invoice date | Invoice amount | Due date | Cease shipment date |
| January 1, 2017 | 40,000 | Jan 31 | April 1 |
08
0821
In this single invoice example, you must cease shipment if the January 1 invoice remains unpaid as of April 1. Any shipments after April 1 will not be covered by EDC. The January 1st invoice remains covered.
Example 2:
Terms of payment: Net 30 days
| Invoice date | Invoice amount | Due date | Cease shipment date |
| January 1, 2017 | 40,000 | Jan 31 | April 1 |
| February 1, 2017 | 25,000 | March 3 | May 2 |
In this 2 invoices example, you must cease shipment if the January 1 invoice remains unpaid as of April 1. The January invoice represents (40,000 / 65,000) 62% of the total amount due. Considering it is higher than the 10% threshold, the cease shipment remains in force. Any shipments after April 1 will not be covered by EDC. The January 1st and the February invoices remain covered.
Example 3:
Terms of payment: Net 30 days
| Invoice date | Invoice amount | Due date | Cease shipment date |
| January 1, 2017 | 40,000 | Jan 31 | April 1 |
| February 1, 2017 | 750,000 | March 3 | May 2 |
In this 2 invoices example, you must cease shipment if the January 1 invoice remains unpaid as of April 1. However, the January invoice represents only (40,000 / 790,000) 5% of the total amount due. Considering it is LOWER than the 10% threshold, the cease shipment is NOT applicable. Any shipments after April 1 will be covered by EDC.
Please feel free to call us should you have any questions.
