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What trade credit insurance covers
A trade credit insurance (TCI) policy pays a percentage of an insured invoice — typically 75–95% of the net value — when a business customer fails to pay due to: their formal insolvency (administration, liquidation, CVA) or protracted default (non-payment for a defined period, commonly 6 months, without formal insolvency). Some policies also cover political risk for export sales.
The policy does not cover invoices that are disputed in good faith — disputed debts are excluded until the dispute is resolved. It also does not cover losses arising from your own breach of contract with the customer.
How buyer limits work
Before insuring a debtor, the insurer assesses the buyer and sets a maximum covered amount — a buyer limit. You can trade above that limit, but only up to the limit is insured. If the insurer declines to set a limit on a particular buyer, that is a significant adverse signal worth investigating before you extend credit.
Buyer limits can change during the policy term. Insurers monitor debtor financial health and can reduce or withdraw limits with notice — sometimes short notice. Build a process to check limit status before dispatching large orders, particularly to customers representing a material proportion of your revenue.
Policy obligations on the insured
Credit insurance is not passive protection. Policyholders must typically: notify the insurer of overdue debts within a specified period (often 30–60 days after the due date), obtain buyer limits before trading, maintain their own credit control procedures to a defined standard, and report changes in debtor circumstances promptly.
Failure to comply with these conditions can reduce or void a claim. Read the policy wording carefully and ensure your credit control team understands their obligations under it.
When credit insurance makes commercial sense
Credit insurance is most valuable where: your debtor book is concentrated (a small number of large customers represent most revenue), your margins are thin (a single bad debt could wipe a significant proportion of annual profit), or you are growing into new markets or new customer profiles where your credit intelligence is limited.
For businesses with a large, diverse, low-value debtor book, the administrative overhead of maintaining buyer limits and reporting overdue debts can outweigh the benefit. The premium cost (typically 0.1–0.5% of insured turnover, illustrative) must also be weighed against your historical bad debt rate. Discuss your specific profile with a specialist broker.
Frequently asked questions
Does credit insurance work alongside invoice financing?
Yes — many invoice finance providers require or strongly encourage credit insurance on the debtor book they are advancing against. A non-recourse invoice finance facility effectively bundles the insurance into the facility. If you use recourse factoring or discounting, a separate credit insurance policy can close the bad-debt gap.
Can we insure individual invoices rather than our whole debtor book?
Single-invoice or specific-account credit insurance products exist and are offered by some specialist underwriters. They tend to carry higher per-unit cost than whole-turnover policies. They suit businesses with occasional large, one-off contracts rather than ongoing trading relationships.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.