Why trade credit insurance matters to a first-time founder
A single unpaid customer can erase the profit from many successful sales. Cover can protect cash flow and support larger credit limits or borrowing against receivables. It also imposes discipline: the seller must follow approved limits, report overdue invoices and continue sensible credit control for claims to remain valid.
Examples of trade credit insurance
A manufacturer sells £100,000 of components on 60-day terms to an approved retailer. The retailer becomes insolvent owing the full amount. After the waiting period and subject to policy conditions, the insurer pays 90%, or £90,000; the manufacturer bears the uninsured £10,000 and any excluded costs.
Common misunderstanding
The policy does not guarantee every invoice or replace customer checks. Cover may exclude disputed debts, sales above a credit limit, late notifications, related companies or known problems. It also differs from factoring: insurance transfers specified non-payment risk, while factoring involves selling or financing receivables and may include collection.
When to use it
Use trade credit insurance when customer concentration, long payment terms or exports create losses the business cannot comfortably absorb. Compare covered causes, customer limits, waiting periods, excess, recovery duties and cancellation rights. Policy law and political-risk cover vary by market, so disclose the sales process accurately to the insurer.