There is one question that decides whether trade credit insurance is worth a conversation, and it is not what you turn over. It is this: if your largest customer failed tomorrow owing you everything currently unpaid, would the business survive it comfortably, survive it painfully, or not survive it?
If the answer is comfortably, you probably do not need a policy. Tighten credit control and move on. If the answer is either of the other two, you are carrying a risk you have never priced, and there is a product built for exactly that situation.
What the cover actually is
Trade credit insurance pays out when a business customer fails to pay you. The core insured event is their insolvency, and most policies also cover protracted default, meaning an invoice simply goes unpaid for a defined period after its due date. You carry on trading on credit as normal; the insurer sits behind the sales ledger.
Two things come with it that owners consistently underrate. The insurer monitors the financial health of your customers continuously, which is credit intelligence you would otherwise be buying separately or, more realistically, not buying at all. And a policy makes your debtor book more fundable, because invoice finance providers lend more comfortably, and often at better rates, against insured receivables.
Three shapes of policy
Whole turnover. Every credit customer is covered. Cheapest per pound of cover, the most administration, and the shape insurers prefer, because they are not being asked to take only your worst risks.
Key accounts. You insure named large customers only. This is the sensible fit for the concentrated business — the one where three names account for most of the ledger.
Single invoice or single buyer. Cover for one order or one relationship. Useful for the one-off contract that is far larger than anything you normally take on, which is precisely the order that kills small firms.
The three terms that decide whether a claim pays
This is where policies disappoint people, and it is almost always one of these.
The credit limit. Every customer gets a limit, requested by you and then approved, restricted or declined by the insurer. Trade above the limit and the excess is uninsured. That is not a technicality; it is the most common reason a claim settles for less than the owner expected.
The discretionary limit. Below a stated figure you may set your own limit on a customer without asking the insurer, provided you meet the policy conditions — normally holding a satisfactory credit report and a clean payment history on file. Know your discretionary limit, because it is what lets you accept a modest new order on a Friday afternoon without waiting for an underwriter.
The indemnity percentage. Policies do not pay 100%. Cover commonly runs between 75% and 95% of the invoice value, with around 90% a frequent settling point, and the balance stays with you on every loss. That is deliberate: an insurer that paid everything would be funding indifference.
Then the deadlines. Every policy sets a maximum extension period — how far past the due date you may let an invoice run before you must report it — and a claim notification window. Miss either and a valid loss becomes an uninsured one. Put both dates into the same system that produces your aged debtor report, not into a folder.
The exclusion that catches people is not obscure. Cover is for losses you did not already see coming, so an invoice that was seriously overdue when the policy started is not a risk being insured. It is a fact.
What it costs
Premiums are quoted as a percentage of insurable turnover, and across the market the range is roughly 0.05% to 0.6%, with something near 0.2% a common landing point for a straightforward domestic book. What moves you within that range is your sector, your payment terms, how concentrated the ledger is, and your claims history.
A worked example, illustrative but ordinary. A contract manufacturer turns over £600,000 a year, all business to business, on 30-day terms. The ledger is concentrated: the largest customer typically owes £45,000 at any one time, and two others sit near £20,000 each.
At 0.2%, a whole-turnover premium is about £1,200 a year, or £100 a month. If that largest customer entered administration owing £45,000, a policy indemnifying 90% within an approved limit pays £40,500 and leaves a £4,500 loss. Uninsured, the same failure is a £45,000 hole — and on a 12% net margin the business has to win £375,000 of additional sales to earn it back. That is the entire argument, in two numbers.
Set against that: if the same £600,000 were spread across 90 customers with none owing more than £4,000, the £1,200 buys reassurance rather than protection, and the money is better spent on credit control and faster invoicing.
The concentration test
Do this on one sheet of paper. List every credit customer and the largest amount each has owed you at any point in the last twelve months. Add up the top three. Divide by last year's net profit.
Under 0.5, your exposure is survivable and credit control is the priority. Between 0.5 and 1.5, get a quote and weigh the premium against what a bad year actually costs you. Over 1.5 — meaning one bad month across your three biggest accounts wipes out more than eighteen months of profit — you are running a concentration risk that a lender would refuse to accept if the roles were reversed.
What to do instead, or as well
Insurance is not a substitute for the basics, and no insurer will pay a claim on a book you have not been managing. Credit check before a large order rather than after it. Set a written credit limit for every customer and enforce it in your invoicing system instead of in your head. Invoice the day the work is done. Ask for a personal guarantee from the director of a young limited company. Retain title to goods until payment where you sell physical product.
Then decide on cover with the concentration number in front of you rather than on a broker's call. How to credit check a customer before a big order covers the vetting side properly, and the customer who went into administration owing us is what the uninsured version of this feels like from the inside.
Common questions
Does trade credit insurance cover invoices to consumers?
Generally no. These are business-to-business policies, built around the insolvency and default risk of companies whose accounts an insurer can assess and monitor over time. If you sell to the public, the equivalent protections are commercial rather than insurance-based: take payment up front or on delivery, use a payment platform that settles before you ship, take deposits on bespoke work, and keep a clear written cancellation and refund position. Some insurers will look at a mixed book where the business-to-business element is substantial, and export cover for overseas buyers is a normal extension. If your ledger is mostly consumers, your bad-debt risk is real but this is not the product that answers it.
Will an insurer cover a customer I am already worried about?
Probably not, and that is the point. Insurers assess each buyer individually and issue a credit limit, and they can restrict or decline one — including for a customer you have traded with happily for years. A cut or declined limit is uncomfortable, but it is also free intelligence: an underwriter with access to filed accounts, payment data and its own claims experience has just told you something about a name on your ledger. Treat it as a signal to tighten terms, ask for payment on account, or reduce your exposure. Invoices already seriously overdue when cover starts fall outside the policy, so buying insurance mid-crisis does not work.
How does trade credit insurance affect invoice finance?
Favourably, and it is often the reason a policy pays for itself. An invoice finance provider advances a percentage of your debtor book and prices the facility on how likely those debts are to be collected. Insured receivables are lower risk, so funders will typically advance a higher proportion, take a more relaxed view of customer concentration, and price the facility more keenly. Some require credit insurance on large or concentrated debtors before they will fund those balances at all. If you already use invoice discounting or factoring, ask your provider what a policy would do to your advance rate and your margin before you judge the premium in isolation.
Can I insure just one customer rather than the whole ledger?
Yes. Key accounts and single-buyer policies exist for exactly that, and single-invoice cover exists for a one-off order much larger than your norm. Expect a higher rate per pound of cover than on a whole-turnover policy, because you are asking the insurer to take your concentrated risk without the spread of smaller accounts to balance it. That is often still the right trade for a business where three names dominate the ledger. Get both quoted before deciding, though: on a book with a long tail of small customers, whole turnover is sometimes barely dearer and removes the judgement calls about which risks you chose to leave uncovered.
