Trade Credit Insurance

Trade credit insurance indemnifies the seller when a covered buyer fails to pay, whether through formal insolvency or protracted default (payment simply never arriving within the policy's waiting period). Policies typically cover 80 to 95 percent of the insured loss and are written either on a whole-turnover basis (the entire eligible portfolio) or for named buyers and key accounts. Major carriers maintain their own risk databases and approve a coverage limit per buyer, which doubles as an independent second opinion on your customer's health.

The operating discipline is where policies are won or lost at claim time. Coverage runs per buyer up to the carrier-approved limit; sales beyond that limit are uninsured. Policies impose obligations: report overdue accounts within a stated window, stop shipping once an account is past due beyond a threshold, and file claims within deadlines. A credit department that keeps selling to a deteriorating account past the stop-shipment obligation can void coverage exactly when it is needed. The carrier's limit reductions are also live intelligence, since a canceled or cut limit on your customer often precedes public distress.

Strategically, credit insurance does three jobs: it caps catastrophic single-name loss (the one customer whose failure would erase a year of margin), it supports growth by letting the seller extend larger limits than its own balance sheet would prudently allow, and it can improve borrowing terms, since banks lend more comfortably against insured receivables. Pricing usually runs a fraction of a percent of insured sales; the honest comparison is against the seller's expected loss rate and the cost of the exposure concentration it removes.