Trade credit insurance insures manufacturers, traders and providers of services against the Credit risk ,where their buyer does not pay (after bankruptcy or insolvency) or pays very late.
The policy is taken by the Supplier.
The trade credit insurance policy will pay out a percentage of the outstanding debt. This percentage usually ranges from 75% to 95% of the invoice amount, but may be higher or lower depending on the type of cover that was purchased.
In the absence of trade credit insurance many trade transactions would have to be done on a pre-paid or cash basis, or not at all. It is an essential credit management tool and used to control risks, improve payment behaviour, obtain vital buyer information, and monitor exposures.
Trade Credit Insurance transfers a significant part of this credit risk to the insurer, subject to the policy terms, limits and conditions.
Ideal for:
Manufacturers | Distributors | Exporters | Wholesalers | B2B Service Companies | MSMEs
Commercial Risks.
Buyer Insolvency
Protection against eligible loss arising from the insolvency or bankruptcy of an approved buyer, subject to the policy terms and applicable credit limit.
Protracted Default
Protection against eligible non-payment where an approved buyer fails to pay its contractual debt within the period specified under the policy.
Buyer Rejection After Delivery
Certain policies may cover eligible losses arising from rejection of goods by the buyer after delivery, subject to the underlying contract and policy conditions.
Pre-Shipment Buyer Rejection
For goods manufactured specifically to a buyer’s requirements and not readily saleable elsewhere, certain policies may provide protection against eligible losses arising from buyer rejection before shipment.
L/C Bank Risk
Certain Trade Credit Insurance structures may cover eligible losses arising from insolvency or protracted default of the bank responsible for payment under an eligible Letter of Credit transaction.
Consignment Stock-Holding Agent Risk
Eligible policies may provide protection against insolvency or protracted default of a stock-holding agent involved in a covered consignment transaction.
Collecting Bank Failure
Certain policies may cover eligible non-receipt of payment resulting from the failure of a collecting bank.
Geo Political Risks
For eligible overseas buyers and countries, cover may include:
* Transfer restrictions
* War
* Civil war
* Revolution / insurrection
* Import restrictions
* Cancellation of import authority
* Certain additional costs caused by voyage interruption/diversion
The above risk coverages are subject to policy wordings and may vary from Insurer to insurer.
Coverage varies between insurers and policies. Common exclusions or limitations may include:
* Disputes over the quality or quantity of goods or services
* Contractual disputes that are not covered by the policy
* Amounts outside approved credit limits
* Sales made in violation of agreed credit terms
* Fraudulent transactions
* Known or pre-existing financial difficulties, depending on the circumstances
* Uninsured buyers or transactions
* Certain political risks unless specifically covered
* Interest, penalties or consequential losses unless specifically covered
* Losses falling within applicable deductibles or waiting periods
The exact exclusions, conditions and coverage limitations must always be reviewed against the policy wording.
1. Customer Assessment
The insurer assesses the creditworthiness of your customers.
2. Credit Limits
Credit limits may be established for individual buyers based on the insurer’s assessment.
3. Credit Sales
You continue selling goods or services to customers on agreed credit terms.
4. Monitoring
The creditworthiness of customers is monitored during the policy period.
5. Default / Insured Event
If an insured customer fails to pay due to a covered event, the policyholder notifies the insurer in accordance with the policy requirements.
6. Claim Settlement
After assessment of the loss and compliance with policy conditions, the insurer pays the covered portion of the loss, subject to applicable limits, deductibles and other policy terms.
Protect Working Capital
Reduce the potential financial impact of eligible customer defaults on your receivables.
Manage Customer Concentration Risk
Reduce the potential impact of a significant default by a major customer.
Trade With Greater Confidence
Make credit decisions with an additional layer of risk assessment and protection.
Strengthen Credit Management
Use external buyer-risk information alongside your own internal credit-control processes.
Support Business Growth
Consider extending credit to new or existing customers while maintaining an appropriate credit-risk strategy.
We Look Beyond the Premium
At Insurance Man Consulting, we help businesses:
Understand the Risk
We examine your customer profile, credit terms and receivables exposure.
Evaluate the Solution
We help assess suitable Trade Credit Insurance options for your business requirements.
Look Beyond the Benefits
We focus on exclusions, limitations, credit limits, indemnity and important policy conditions.
Prepare for Claims
Our experience in insurance claims helps us bring a practical claims perspective to the insurance discussion.
Our approach is simple:
Understand the risk. Understand the policy. Then make an informed decision.
1.Is Trade Credit Insurance only for exporters?
No. It can also be used by businesses selling goods or services on credit within the domestic market.
2.Does Trade Credit Insurance cover every unpaid invoice?
No. Coverage depends on the policy wording, approved credit limits, insured customers, cause of non-payment and compliance with policy conditions.
3.Can small and medium-sized businesses take Trade Credit Insurance?
Yes. Eligibility and suitability depend on the nature of the business, customer profile, turnover, credit sales and insurer underwriting.
4.Does the insurer check my customers?
Typically, insurers assess the creditworthiness of buyers and may establish or approve credit limits based on their assessment and ongoing monitoring.
5.What happens if my customer becomes insolvent?
If insolvency is a covered event and the transaction falls within the policy terms and approved limits, the insured may be able to claim for the covered loss, subject to the policy’s applicable conditions and retention.
6.Does Trade Credit Insurance cover international customers?
Yes, policies can be structured to cover eligible export transactions and certain political risks, subject to underwriting and policy terms.
7.Is Trade Credit Insurance the same as factoring?
No. Factoring is a financing/receivables-management arrangement, whereas Trade Credit Insurance is primarily designed to protect against specified credit risks and resulting losses.
8.What should I check before buying Trade Credit Insurance?
The most important areas include credit limits, exclusions, buyer eligibility, waiting periods, deductibles, notification requirements, policy conditions and claims procedures.
9.Can I insure only my largest or riskiest customers?
This depends on the type of policy and insurer.
Trade Credit Insurance can be structured in different ways, including broader portfolio arrangements and certain solutions focused on particular buyers or transactions.
What happens if my customer’s financial position deteriorates after I buy the policy?
The insurer may review and change the credit limit based on changes in the buyer’s risk profile.
Credit insurers typically monitor buyers and can increase, reduce or withdraw limits depending on changing circumstances
10.Does Trade Credit Insurance cover disputes with customers?
Not necessarily.
This is an important distinction.
A customer refusing to pay because of a genuine commercial dispute is different from insolvency or protracted default. For example, ECGC’s Domestic Credit Insurance Policy expressly excludes losses arising from disputes with the buyer/agent under that policy.
11.Does Trade Credit Insurance cover government customers?
Not automatically.
Eligibility depends on the specific policy.
For example, ECGC’s Domestic Credit Insurance Policy excludes certain trade with government or public institutions. Other policies and structures may differ
12.How is the Trade Credit Insurance premium calculated?
Premium is not based on one universal rate.
Insurers may consider factors such as:
* Annual/insured turnover
* Industry
* Customer profile
* Customer creditworthiness
* Countries in which you trade
* Payment terms
* Previous loss experience
* Desired level of coverage
13.Can Trade Credit Insurance help me sell to new customers?
Yes, it can support more informed credit decisions by providing buyer-risk information and an assessment of the credit exposure the insurer is prepared to accept.
This can help businesses consider new customers or larger credit limits with greater confidence.
14.What information does an insurer need before providing Trade Credit Insurance?
Typically, the insurer will need information about the business, turnover, customer portfolio, credit terms, receivables and trading history.
Information about individual buyers and their creditworthiness is also important because the insurer needs to assess the risk and determine appropriate credit limits
The exact documents depend on the insurer, policy wording and reason for non-payment. However, the following documents are commonly required:
1. Policy Documents
* Copy of the Trade Credit Insurance policy
* Policy schedule and endorsements
* Details of the approved credit limit for the buyer
* Any specific terms or conditions applicable to the buyer
2. Customer & Transaction Documents
* Customer/buyer details
* Customer’s credit application or KYC information
* Purchase orders
* Sales invoices
* Contracts or supply agreements
* Delivery challans / proof of delivery
* Goods receipt or acknowledgement from the buyer, where applicable
3. Outstanding Receivables
* Statement of account showing the outstanding amount
* Ageing report of receivables
* Details of payments already received
* Copies of correspondence regarding the outstanding payment
* Confirmation of the amount remaining unpaid
4. Evidence of Default
Depending on the circumstances, the insurer may require:
* Demand notices sent to the customer
* Follow-up correspondence and payment reminders
* Evidence of prolonged default
* Legal notices, where applicable
* Court / insolvency proceedings documents
* Public notices or official records relating to insolvency
* Evidence of bankruptcy or winding-up proceedings, where applicable
5. Claim & Recovery Documents
* Completed claim form
* Notice of loss / default submitted to the insurer
* Details of any security or collateral available
* Details of amounts recovered from the customer
* Recovery correspondence and legal documents
* Bank statements or other evidence supporting payments received
6. Financial & Supporting Records
Depending on the claim, the insurer may also request:
* Ledger extracts
* Audited financial statements
* GST / tax-related records where relevant
* Bank statements
* Sales records
* Credit-control records
* Any other documents required to establish the quantum and validity of the loss
Important: The insurer may request additional documents depending on the circumstances of the claim. Policyholders should maintain proper credit-control and transaction records throughout the policy period
Step 1 – Identify the Default
The insured identifies that a customer has failed to pay within the agreed credit terms or that another insured event has occurred.
Step 2 – Notify the Insurer
The policyholder should notify the insurer within the timeframe prescribed by the policy.
Timely notification is critical. Failure to comply with notification requirements can affect the claim.
Step 3 – Submit the Claim
The policyholder submits the claim form along with the relevant invoices, contracts, proof of delivery, statement of account and other supporting documents.
Step 4 – Insurer Reviews the Transaction
The insurer verifies:
* Whether the buyer is covered
* Whether the transaction falls within the policy
* Whether the credit limit was approved
* Whether the sale complied with the agreed credit terms
* Whether the cause of non-payment is covered
* Whether policy conditions have been complied with
Step 5 – Verification of the Loss
The insurer assesses the actual outstanding amount and may verify:
* Invoices
* Delivery of goods/services
* Customer ledger
* Payments received
* Credit notes or disputed amounts
* Recoveries
* Applicable deductible or retention
* The insured credit limit
Step 6 – Recovery Efforts
Depending on the policy, the insurer and/or insured may initiate or continue recovery efforts against the defaulting customer.
Any amounts subsequently recovered are dealt with in accordance with the policy’s recovery provisions.
Step 7 – Claim Assessment
Once the insurer has completed its assessment, the payable claim amount is determined after considering:
Eligible Loss
− Recoveries
− Deductible / Retention
− Any applicable exclusions or limitations
= Claim Payable
The actual calculation will depend on the policy wording.
Step 8 – Claim Settlement
Once the claim is approved and the required documentation and formalities are completed, the insurer settles the admissible claim amount in accordance with the policy terms.
Trade Credit claims can become complicated when there are gaps in documentation or compliance.
Common issues include:
* Credit extended beyond the approved limit
* Failure to notify the insurer within the prescribed timeframe
* Missing proof of delivery
* Customer disputes regarding goods or services
* Incorrect or incomplete invoices
* Outstanding amounts that include disputed or non-covered amounts
* Failure to comply with agreed credit terms
* Insufficient evidence of the customer’s default
* Lack of proper recovery efforts
* Policy conditions not being complied with
