Forfeiture, or losing the cover on a perfectly valid receivable

There is a way of losing an indemnity that owes nothing to the debtor, nothing to the country and nothing to the cause of default: forfeiture. The receivable is perfectly valid, the loss is beyond dispute, and the insured receives nothing because it breached a contractual obligation. This mechanism is poorly understood because it shocks: the sanction looks disproportionate to the fault, and sometimes it is. It is nevertheless explicable, and the explanation is the key to ranking these breaches: credit insurance covers a risk the insured partly controls, and each disclosure duty exists to give the insurer back a power of decision it has nowhere else.

The first family of breaches concerns disclosure of the risk at underwriting and during the contract. The insurer prices and grants limits on the strength of what the insured describes: its activity, its usual payment terms, its past loss experience, the identity of its buyers. An inaccuracy that would have changed its assessment, even without intent to deceive, opens under various laws either proportional reduction or avoidance. Good faith is therefore not a general excuse: it separates the heavy sanction from the proportionate one, it does not make the latter disappear.

The second family, the commonest in practice, concerns notification deadlines for overdue accounts. All policies require a delay to be reported within a short period, often thirty to sixty days after maturity, and that duty seems bureaucratic while nothing is going wrong. It is not: notification is what allows the insurer to suspend a limit, stop shipments, and start recovery while the debtor still has assets. Late notification removes those three powers, and forfeiture sanctions that deprivation rather than the delay itself. That is why it is often total rather than proportional.

The third family is the most expensive and the least known: continuing to deliver after an overdue. An exporter whose customer is accumulating arrears keeps shipping so as not to break the relationship, sometimes so as not to lose an order book, and it deliberately aggravates an exposure the insurer can no longer refuse since it was not told. Most policies then exclude deliveries made after the undeclared overdue, including where the buyer's limit was still running. The point is subtle and decides whole files: a limit in force authorizes delivering to a sound buyer, it does not authorize delivering to a buyer already in arrears about which nothing was said.

The fourth family concerns recovery and acts compromising subrogation. Granting extra time, accepting a credit note, signing a new schedule, settling on an amount: each of these normal commercial steps alters the receivable the insurer will have to recover after indemnification, and most policies subject them to prior consent. The sanction here is not total forfeiture but reduction to the extent of the prejudice caused to the insurer, which is fairer and makes the arithmetic uncertain. The useful step is simple: anything altering the receivable is put in writing to the insurer before being granted to the customer.

Ranking these breaches by what they cost is more useful than memorizing them. Continuing to deliver on an undeclared overdue costs all subsequent deliveries, that is, often the bulk of the loss. Failing to notify within the period frequently costs the whole receivable concerned. Omitting a buyer from a turnover declaration puts its receivables outside cover. Under-declaring an amount opens a proportional rule. Granting time without consent reduces to the extent of the prejudice. The ranking is not incidental: it says where to put organizational effort when one cannot watch everything.

What protects is not vigilance but mechanism. An overdue exceeding the contractual period must trigger an automatic notification, produced by the accounting system and not by a human decision, because it is precisely when one still hopes for payment that one chooses to wait. Blocking shipments to an account in undeclared arrears belongs to the same arrangement. Those two automatic controls cost a few days of configuration and remove the two heaviest causes of forfeiture, a return no negotiated clause will ever match.