Credit Insurance
Insurance that protects a business against the risk of a customer failing to pay an invoice, typically due to insolvency or protracted default.
Trade credit insurance, also known as debtor insurance or accounts receivable insurance, protects businesses against the financial loss arising when a customer fails to pay an invoice. The most common causes of claim are customer insolvency and protracted default (where a customer simply refuses or fails to pay within an extended period beyond the invoice terms).
In the context of invoice finance, non-recourse factoring arrangements incorporate credit insurance as part of the facility. If your customer becomes insolvent and cannot pay, the finance provider (who has insured the risk) absorbs the loss rather than charging it back to you. In recourse factoring, there is no credit insurance and you remain liable.
Standalone trade credit insurance is also available independently of invoice finance. Businesses with large exposures to single customers, or those trading internationally, often find it a cost-effective way to protect their balance sheet.
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