What Is Trade Credit Insurance?
Trade credit insurance protects your business when a customer does not pay you. If you sell on 30, 60 or 90 day terms, you are effectively lending customers money until the invoice is settled. When a customer goes bust or simply stops paying, that unpaid invoice can wipe out months of profit.
The policy pays out a percentage of the unpaid invoice, usually around 90%. It is insurance for your sales ledger, the money you are owed but have not yet collected.
Most small businesses discover this cover only after their first serious bad debt. Bibby Financial Services found UK SMEs are owed an average of £66,770 in unpaid invoices, and nearly a third wrote off around £30,000 last year. Insolvency Service figures show 1,882 companies in England and Wales entered insolvency in September 2026 alone. Trade credit insurance does not replace good credit control. It sits behind it: the insurer checks your buyers, monitors their financial health, and pays out when the worst happens.
What Does Trade Credit Insurance Cover?
A standard policy covers three situations. Customer insolvency is the core event: your buyer enters liquidation, administration, a company voluntary arrangement or bankruptcy. Protracted default covers the customer who has not gone bust but simply does not pay; after a defined waiting period, often several months, the insurer treats the debt as a loss. Political risk, on export policies only, covers government action or war in the buyer’s country.
What it does not cover
Disputed invoices. If your customer refuses to pay because they say the goods were faulty or the work was incomplete, that is a contract dispute, not an insured loss.
Debts that were already bad. An invoice that was seriously overdue when the policy started is not covered. You cannot insure a loss you can already see coming.
Trading above the credit limit. Every customer gets a credit limit approved by the insurer. If you keep supplying beyond that limit, the excess is uninsured.
Late notification. Every policy sets a maximum extension period and a window for telling the insurer. Miss those deadlines and the claim can fail even when the loss itself is genuine.
The Three Types of Policy
Whole turnover cover insures every credit customer. It is the cheapest cover per pound of premium, because the insurer gets a spread of risk across your whole customer base rather than only your worst risks. It involves the most administration, since you report your full ledger, but for a business with many customers it is usually the best value.
Key accounts cover insures named large customers only. This suits the concentrated business where three or four names account for most of the ledger. If one buyer is 40% of your revenue, insuring that buyer alone may be the most cost-effective choice.
Single buyer or single invoice cover protects one customer or one order. This fits the one-off contract far larger than anything you normally take on. Specialist platforms also offer single-invoice cover from around 0.5% to 2% of the invoice value, useful for one large transaction without a year-long policy.
How Much Does Trade Credit Insurance Cost?
Premiums are quoted as a percentage of the turnover you insure, known as the rate on turnover. The premium depends on your industry, your customers, your claims history and how well you manage credit. Across the market, the typical range is roughly 0.05% to 1.0% of insured turnover per year, with around 0.2% a common figure for a straightforward domestic book.
Worked examples at a 0.2% rate show how modest the cost can be:
| Insured turnover | Premium at 0.2% | Rough monthly cost |
|---|---|---|
| £100,000 | £200 | £17 |
| £300,000 | £600 | £50 |
| £600,000 | £1,200 | £100 |
| £1,000,000 | £2,000 | £167 |
Your quote will be higher with few customers, long payment terms, export exposure, a recent claim or higher-risk sectors such as construction. If one buyer is more than 20% to 25% of your revenue, insurers may cap that buyer’s limit, charge more or exclude them.
The total cost is more than the headline premium. Insurance Premium Tax at 12% applies, and some insurers add a service fee, which carries VAT. Minimum premiums also apply: Coface’s EasyLiner for SMEs starts from £2,000, and Allianz Trade sets a £500,000 minimum turnover for standard policies, with a simplified product for smaller firms.
How a Claim Works, Step by Step
1. Set credit limits before you trade. For each customer, you request a limit and the insurer approves, restricts or declines it. Below a stated figure, many policies let you set your own limit, called a discretionary limit, if you hold a satisfactory credit report and clean payment history for that customer.
2. Report overdue invoices promptly. When an invoice passes its due date, the clock starts. Notify the insurer inside the window your policy sets, usually within 30 to 60 days of the due date.
3. The insurer helps collect. Insurers usually take on debt collection through their own teams. This protects your relationship with the customer, since the pressure comes from a third party, and it satisfies the policy condition that you pursue the debt.
4. The claim is assessed and paid. For insolvency, the payout follows once the insolvency is confirmed; for protracted default, after the waiting period in your policy. Payouts typically take 30 to 90 days. At a 90% indemnity, a £45,000 unpaid invoice pays £40,500 and leaves a £4,500 loss with you.
Is Trade Credit Insurance Worth It for Your Business?
Use this simple test. List every credit customer and the largest amount each has owed you in the last twelve months. Add up the top three and divide by last year’s net profit. If the answer is more than one, a single bad debt from your biggest customers would wipe out a full year of profit. That is the business that needs cover most.
Cover is most clearly worth it when one or two customers dominate your revenue, you offer 60 or 90 day terms, you supply high-failure sectors such as construction, retail or hospitality, or you are growing fast with untested customers. It is least useful when you are paid mostly upfront, your customers are consumers, or your invoices are small and spread across hundreds of buyers.
Alternatives Worth Considering First
These alternatives cost little and should be in place whether or not you insure.
Credit checks on new customers. Check a buyer’s accounts and payment history before offering terms. Companies House filings are free to view.
Shorter terms and staged payments. Ask for a deposit, invoice in stages or move a slow payer from 60 days to 30. This is often the cheapest risk reduction available.
Retention of title. A clause stating goods remain yours until paid gives you a legal route to recover them, but it must be in your contract before the sale.
Invoice finance. Factoring or invoice discounting advances most of an invoice’s value on issue. It solves cash flow rather than bad debt, although some facilities add bad debt protection.
Charging statutory interest. Under the Late Payment of Commercial Debts (Interest) Act 1998, you can charge 8% above Bank Rate on overdue business invoices, plus fixed compensation of £40 to £100 depending on the debt. With Bank Rate at 4.00% since 5 November 2026, that is 12% interest at the time of writing.
How to Buy It
Start with a specialist broker rather than going direct to an insurer. Brokers compare the main underwriters, Allianz Trade, Atradius, Coface, QBE and AIG, and know which suits small books. A broker also helps set credit limits and handles claims paperwork.
Before asking for quotes, gather your annual turnover and the share sold on credit, your largest customers with typical amounts owed, and your bad debt history. Get at least two quotes and compare more than the premium: check the indemnity percentage, the discretionary limit and the claims notification window. A cheap policy with a 75% indemnity and tight deadlines can be worse value than a dearer one that pays 90%.
Frequently Asked Questions
Can I insure just one customer?
Yes. Key accounts and single-buyer policies exist for exactly that, though expect a higher rate per pound of cover than on a whole turnover policy.
Does it cover customers who pay late but eventually pay?
No, unless the delay runs past the protracted default period in your policy. Late payment on its own is not a claim. The policy pays when the money never arrives, not when it arrives slowly.
Is the premium tax deductible?
Premiums are generally an allowable business expense for a limited company or sole trader, which reduces the effective cost. Confirm the treatment with your accountant, as it depends on your circumstances.
What happens if the insurer refuses a credit limit for a customer?
You can still trade with them, but the sales are uninsured. Treat a declined limit as a warning: ask for payment upfront or shorten the terms.
The Bottom Line
Trade credit insurance turns a risk that could close your business into a fixed cost of a few hundred pounds a year. If your biggest customers owe you more than a year of profit, get two quotes before your next large order. The best time to buy is when every customer is paying on time, because that is when it is cheapest and every buyer is still insurable.
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