Protecting one of the largest assets on the balance sheet

For many businesses, accounts receivable can represent a substantial concentration of capital. Trade credit insurance can provide protection where insured customers fail to pay because of covered insolvency or other insured events, subject to approved credit limits, policy conditions and exclusions.

Who may consider trade credit insurance

• Manufacturers and wholesalers
• Importers and distributors
• Food and beverage businesses
• Building-product suppliers
• Technology and equipment suppliers
• Businesses with a small number of large customers
• Companies expanding into new markets
• Exporters with overseas debtor exposure

What trade credit insurance can cover

Depending on the policy, cover may respond to insured debtor insolvency, protracted default and certain political or export risks. The scope varies between insurers and policy structures, and cover is generally subject to credit limits, waiting periods, reporting obligations and exclusions.

Whole-turnover versus selected-account structures

Some policies cover a broad portfolio of debtors, while others may be structured around selected key customers or specific risks. The most suitable approach depends on debtor concentration, annual credit sales, internal credit controls and the level of risk the business wants to retain.

Credit limits

Insurers typically establish or approve credit limits for insured buyers. Those limits can change during the policy period as financial information or market conditions change. Businesses need to understand how discretionary limits, insurer-approved limits and reductions in cover operate under the policy.

Claims and overdue accounts

Trade credit policies usually require timely reporting of overdue debts and may set specific deadlines for collection action or claims notification. Failure to comply with policy procedures can affect cover, so the administration of the policy is an important part of the insurance arrangement.

Debtor concentration risk

A business can remain profitable yet still be vulnerable if one major customer fails. Concentration by customer, industry or geography is an important consideration when assessing credit risk and policy structure.

Information insurers commonly request

• Annual credit sales
• Debtor ageing reports
• Top customer exposures
• Bad-debt history
• Internal credit-control procedures
• Export sales and countries involved
• Requested credit limits
• Industry and customer concentration

Trade credit insurance and finance

Some businesses use trade credit insurance as part of broader debtor-finance or banking arrangements. Whether a policy can support a finance arrangement depends on the lender’s requirements and the policy terms.

Important policy differences

Key areas to compare include maximum liability, insured percentage, discretionary limits, waiting periods, credit-limit procedures, overdue reporting, collection responsibilities, export cover and exclusions. All cover is subject to the insurer’s policy wording, schedule and conditions.