Trade Credit Insurance Basics

What it actually covers

Trade credit insurance protects your accounts receivable against the risk that a customer does not pay — most often because they become insolvent, and sometimes because they simply default beyond an agreed period. If a covered customer fails, the insurer indemnifies you for an agreed proportion of the loss, so one large failure does not threaten your own solvency.

It is particularly valuable where you carry concentrated exposure to a few large customers, sell on extended terms, or trade in sectors prone to sudden failures. Rather than absorbing the full hit of a bad debt, you recover most of it from the policy. The trade-off is premium cost and a set of obligations you must meet to keep cover valid.

How cover works in practice

Policies usually share a few common features:

• cover is a percentage of the insured debt, not the full amount — an excess or co-insurance share stays with you;
• each customer is assigned a credit limit the insurer is willing to back;
• you must trade within those limits for a claim to be honoured;
• overdue accounts must be reported and pursued within set timeframes.

The insurer is, in effect, doing credit assessment alongside you — which can be useful intelligence in its own right.

The trade-offs

Insurance is not free protection. You pay a premium, you retain part of every loss, and you accept conditions: trade outside an approved limit and that portion may be uninsured; miss a reporting deadline and a claim can be declined. The insurer may also reduce or withdraw cover on a customer whose risk deteriorates — sometimes exactly when you most want it.

Weigh the premium against the bad debts it would realistically prevent. For some businesses the peace of mind and the insurer's risk data justify the cost; for others, disciplined in-house credit control and prompt recovery are more cost-effective. This is general information, not financial or legal advice.

Insurance is not a substitute for control

A policy reduces the consequence of a bad debt; it does not stop one happening, and it rarely covers you in full. The excess, the co-insurance share, your time, and the cash-flow gap while a claim is processed all remain real costs. Strong credit controls still pay — and they keep you inside the limits the insurer requires.

Treat insurance as one layer alongside sound limits, references, and prompt follow-up. Where a debt is uninsured, partly insured, or below the claim threshold, recovery still matters: Merion pursues overdue commercial debts on a commission-only basis with no upfront fee — see refer a debt.