Glossary · UK
What is Trade Credit Insurance?
Business insurance that protects against the risk of a customer failing to pay an invoice due to insolvency or protracted default.
Full Definition
Trade credit insurance (also called bad debt insurance or accounts receivable insurance) protects a business against the risk that a customer it has sold goods or services to on credit terms fails to pay, whether due to insolvency, formal administration, or simply defaulting on payment for a prolonged period. Policies typically cover a percentage of the invoice value (commonly 80-95%) rather than the full amount, and the insurer usually assesses and sets a credit limit for each significant customer, meaning a business's trade credit insurer effectively performs an ongoing credit-check function across its customer base, which can be a useful side benefit for risk management even before any claim is made. Trade credit insurance is particularly valuable for businesses that rely heavily on a small number of large customers (where losing one payment could be seriously damaging), export businesses facing less familiar overseas credit and legal risk, and businesses looking to offer longer payment terms to win contracts without taking on excessive default risk. It can also make invoice factoring or invoice discounting facilities more attractive to a lender, since insured debtor balances are generally seen as lower risk, and can support raising other forms of trade finance on better terms.