Trade Credit Insurance | Protecting your business from the financial impacts of bad debts

By October 9, 2024Trade Credit

Rising costs and their flow on effects are impacting businesses across all industries, and for business owners, protecting your cashflow is essential for long-term success.

With the recent news of continued insolvencies, particularly in the construction sector leaving subcontractors considerably out of pocket, it is timely to again highlight the potential benefits of Trade Credit Insurance and its role in mitigating these exposures.

What is Trade Credit Insurance?

Any business that sells or provides goods and services on credit terms is at risk of significant financial impacts from non-payment due to insolvency or continued payment defaults.

Trade Credit Insurance (also known as Debtor Insurance or Accounts Receivable Insurance) can protect your business against unpaid commercial debts caused by financial or political reasons that result in your customers not being able to pay their bills.

This policy is designed to protect businesses that sell goods or services on credit terms, and you can structure the policy to insure either all your debtors, or just a few key accounts. The level and cost of your Trade Credit cover will differ between businesses as there is no one size fits all approach, and different industries present their own unique challenges. Factors including the size of your portfolio, the level of risk of your customers pose and the market you operate in will be taken into consideration by the insurer.

Most Trade Credit policies will provide your business with access to a Trade Credit System, which is a platform that enables a user to access a network of real-time information, analysis and business assessments to better understand your industry and your suppliers. This will differ between each insurer and which level of cover you opt to take. The insurer(s) will run credit reports on your debtors and apply risk ratings to each one. This information can also be used to assist you in making business decisions such as extending credit terms for businesses with a high rating and avoiding using customers with unfavourable results.

What happens if I need to make a claim?

In the event that you have an unpaid invoice, your insurer may try to recover the debt first, through negotiations or debt collection services with either the customer or receiver/liquidator, depending on the situation.

If the insured debt cannot be recovered, the insurer will offer a settlement based on the specific terms and conditions of your policy.

Benefits of Trade Credit Insurance.

  • Helps to protect your cash flow and profits against the risk of a customer defaulting on sales made on credit terms.
  • Helps mitigate your business’ risk when a large portion of your income is made up by a small number of key accounts.
  • Provides an insured credit limit for a customer and monitors their portfolio performance during the elected policy period.
  • May allow for a reduction in your company’s bad debt reserves.
  • Help safeguard your customer relationships.
  • Can help improve your relationship with financiers and access to finance.
  • Can assist with growth by reviewing and supporting trade with new customers or markets.
  • Trade Credit insurers can provide credit reports on individual customers or current or developing risks for specific industries to help you better manage your customer base and the financial risks of the business.
  • Meet the risk management requirements of your stakeholders and provide peace of mind.

Let’s Chat.

We have always believed that insurance is the act of making educated and informed decisions on which risks a business should transfer for a premium, versus which risks to retain and/or mitigate via other strategies. Now more than ever we would recommend for all businesses to take time to consider Trade Credit insurance and how it may positively impact your businesses risk profile.

Get in touch with the team to find out if Trade Credit insurance is a suitable option to help protect and grown your business.


General Advice Warning
This communication including any weblinks or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to be a constitute personal advice. We strongly recommend that you consider the suitability of this information, in respect of your own personal objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.