What is Trade Credit Insurance?
Trade Credit insurance is a type of insurance designed to protect businesses against the risk of non-payment by their customers for goods or services provided on credit. It provides financial protection by safeguarding cash flow and profitability by covering losses from unpaid invoices, reducing the impact of bad debts on the business.
Additional benefits for businesses include:
- Enhanced credit management: allows businesses to extend competitive credit terms to customers, with confidence
- Improved access to financing
- Business stability and growth: by mitigating the risk of significant financial loss, allowing businesses to plan and grow more securely
What Does Trade Credit Insurance Cover?
Depending on the policy, trade credit insurance can be either:
- Comprehensive cover: protecting your entire credit portfolio, including domestic and export customers
- Excess of loss: suitable for businesses with strong internal credit management processes who want cover for exceptional loss across their entire portfolio
Key coverage features include:
- Coverage against non-payment in the event of customer insolvency, protracted default, or political events (e.g., war or expropriation)
- Credit limit management
- Debt collection support
- Risk management tools
Client Example
A manufacturer supplies products to several retailers on 60-day credit terms. One of the major retailers unexpectedly files for bankruptcy and is unable to pay an outstanding invoice of $200,000. With trade credit insurance, the manufacturer files a claim and receives compensation for the unpaid invoice, ensuring the business’s cash flow remains stable despite the loss.