Why credit insurance matters to a first-time founder
Credit insurance can protect cash flow when a major customer becomes insolvent or does not pay for an insured reason. It may also support borrowing against receivables. The policy will not remove every loss: limits, waiting periods, excesses, exclusions, reporting duties, and collection requirements determine what is recoverable.
Examples of credit insurance
A wholesaler has an insured €50,000 invoice and the customer becomes insolvent. The policy covers 90% after a €2,000 excess. A simplified claim is (€50,000 − €2,000) × 90% = €43,200, subject to policy terms. Late notification or sales above the approved customer limit could reduce or defeat cover.
Common misunderstanding
Credit insurance is not the same as checking a customer’s creditworthiness, factoring invoices, or insuring a borrower’s loan repayments. It transfers specified trade-credit losses to an insurer but leaves the seller responsible for prudent limits and collections. Cover for political or export risks may require separate terms.
When to use it
Consider it when a few customers create a large concentration, sales use long payment terms, or exports expose the business to unfamiliar risks. Compare the premium with the loss the company could absorb. Read the policy and maintain required procedures; insurance regulation, insolvency processes, and available cover vary by jurisdiction.