Glossary · Credit management
Trade credit insurance
Also called Credit insurance, Accounts receivable insurance
Trade credit insurance pays a supplier most of an invoice’s value if a customer fails to pay because of insolvency or long-term default.
A trade credit insurance policy covers some or all of your receivables against non-payment. If an insured customer becomes insolvent, or doesn’t pay within a set period after the due date, the insurer pays an agreed percentage of the loss — often in the range of 80 to 90% — and pursues the debt itself.
The insurer sets a credit limit for each customer it covers, which doubles as an outside view of that customer’s risk. Invoices above the limit, or to customers it won’t cover, are uninsured.
Premiums are typically a fraction of a percent of insured sales, depending on the industry and the customers. Policies also require you to follow their rules — reporting overdue accounts on time, for example — or a claim can be refused.
Example
A supplier insures its receivables with 90% cover. A customer owing €50,000 enters administration; the insurer pays the supplier €45,000.