Protecting Business from Non-Payment Risk

Bankruptcy filings in the US have been trending upward in 2026, with a significant increase compared to previous years. Global trade faces significant challenges, including rising protectionism, supply chain disruption, and geopolitical instability. This adds increasing margin pressure to trading companies and their cash flow generation. The risk of payment default is a significant concern for companies trading on open account terms. Business customers’ (‘buyers’) payment defaults can be catastrophic for businesses. However, there are ways to mitigate this risk for businesses. One of the mitigation products is trade credit insurance.

An Overview of Trade Credit Insurance

Trade credit insurance protects businesses from non-payment of commercial debt by covering business-to-business (B2B) accounts receivable risk exposure. If companies do not receive what they are owed due to a buyer’s bankruptcy, cash flow issue, or political risk under export sales, a trade credit insurance policy may reimburse the insured for a majority of the outstanding debt.

Types of Coverage

Coverage typically addresses two types of risk:

• commercial risk, such as protracted default and insolvency, and
• political risk for export businesses, such as currency inconvertibility, embargoes, war, license cancellation, and public buyer defaults.

Protracted default is the buyer’s failure to pay an undisputed amount owing within a predetermined period of time. This varies from insurer to insurer and may also be longer for certain export countries.

Types of Policies for Short-term Sales

Short-term sales up to 180 days and, in certain instances, up to 360 days are eligible for coverage.

Policies include:

Multibuyer policy: This policy allows an insured to cover all sales to eligible buyers, be they domestic, international, or both, on open account credit terms. Policies usually provide coverage at 90% indemnity and may have an annual/policy deductible based on portfolio risk. A discretionary credit limit is often included in the policy so the insured may apply their credit management policies and procedures to approve the credit  limits for their sales up to certain value. The insurers will review the requested credit for all buyers in excess of the discretionary credit limit.

Key account or spread of risk policy: This policy is designed for the insured that is interested in covering its key accounts (usually the top 10–15 customers), select accounts that create credit concentrations or fall within a specific product line, a separate division, or only those accounts with extended terms of sale. Coverage is usually at 90% or 95%, and may or may not involve an annual/policy deductible.

Single-buyer policy: This policy provides protection for short-term credit sales made to a single buyer, domestic or international. These policies usually carry an indemnity rate of 90% and do not have annual/policy deductibles. The indemnity rate and policy deductibles can be adjusted/introduced as part of an important/strategic negotiation with the insurers.

Policies for Medium-term Sales

Coverage is available for private and public sector loans, derivatives (mark-to-market exposure), and project finance for anywhere from five to twenty years, depending upon the asset class and other factors.

Political-risk-only coverage can be arranged on any of the above policy formats.

Other Features

Work In Progress Coverage

This refers to the period after a sale has been agreed but before any goods are dispatched, where a business may manufacture a bespoke product specifically for one customer, i.e., bespoke machinery, or branded goods. Often, manufacturing bespoke goods can be a costly process. For instance, what happens if the buyer becomes insolvent before dispatch even takes place? Trade credit protection can cover the costs incurred via work in progress coverage, up to a maximum of three months.

Retention of Title

Some insurers insist upon contracts of sale incorporating a legally effective and enforceable ‘All Monies Retention of Title’ clause, where appropriate. Assistance in clause design is available where appropriate.

Assigning the Policy

The insurers can recognize the interest of banks and other financial institutions. This may be done in several ways, from simply allowing the recognized party first rights to any claim payments through to joint insured arrangements (depending upon the insurer).

Exclusions

Most credit insurance policies exclude:

• sales to governments
• VAT (or similar local taxes)
• sales to subsidiary and associate companies, although it may be possible to arrange coverage against political risks
• queried and disputed debt

Policy Duration

Policies are typically 12 months in duration. Longer-term arrangements, usually 2 years, are often available. The availability of longer-term arrangements will usually depend upon bad debt/claims experience and also general market conditions. For many, 2-year contracts offer certainty of cost (although most insurers attach a right to terminate the contract after the first year if claims have exceeded a predetermined percentage of premium at that point).

Cost

The cost of the trade credit insurance policy will vary depending on the industry, the annual revenue that needs to be insured, the company’s history of bad debts, its current internal credit procedures, and its customers’ creditworthiness, among other factors. If a company sells to clients in a mix of industries and countries, the trade credit insurance rates will reflect the risk determined to be associated with all of these pieces of information.

Final Thoughts

With trade credit insurance, a company can better manage the risks of trade that are beyond its control. In this way, trade credit insurance can help a business feel more secure in extending additional credit to its current customers or even pursuing new and or larger customers that would have seemed too risky otherwise.

Trade credit insurance can provide the following benefits:

• Expand sales with confidence, whether selling more to existing customers or pursuing new customers.
• Reduce bad-debt reserves, freeing up capital.
• Protect against non-payment and catastrophic loss.
• Access better financing terms, as banks will typically lend more capital against insured receivables.
• Make the best possible business decisions by accessing the trade credit insurer’s information risk data quickly.
• Expand into new international markets, backed by protection from unique export risks and the market knowledge to make accurate growth decisions.

A trade credit insurance policy has the potential to offset its own cost many times over, even if the insured never makes a claim, by increasing sales and profits without taking on additional risk. It’s important that a company works with an insurance broker who has expertise in trade credit insurance to assess the risk profile of the business and understands its unique insurance and risk management needs.

---

Disclaimer: The information contained herein is offered as insurance industry guidance and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer financial, tax, legal or client-specific insurance or risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis.

---

[Editors’ Note: To learn more about this subject, watch Corporate Risk Management Basics, a free on-demand webinar.

This article was originally published on May 26, 2026.]

©2026. DailyDAC^TM, LLC. This article is subject to the disclaimers found here.