Trade Credit Insurance (Kreditversicherung)
Trade credit insurance protects businesses against the loss of receivables resulting from the insolvency or protracted default of their customers on goods or services supplied on credit.
Comparison profile
- Trigger
- Loss occurring (reinsurance)
- Insured interest
- The policyholder's trade receivables from goods or services supplied on credit, against the risk of non-payment by an insured buyer.
- Rating basis
- Insured turnover, Buyer portfolio quality and concentration, Sector and country risk, Claims history
- Typical limits
- Individual credit limits per buyer set by the insurer, with an overall policy indemnity typically between 85 and 95 percent of the insured receivable.
- Typical deductibles
- A percentage co-insurance (self-retention) of 5 to 15 percent per loss is standard, in addition to any first-loss deductible.
- Target segments
- SME, Industry, Multinational
Insured events
- Formal insolvency or bankruptcy of an insured buyer
- Protracted default (non-payment beyond an agreed period, commonly 90 days, despite collection efforts)
- Payment moratoria affecting the buyer (whole-turnover policies)
Key exclusions
- Receivables from buyers without an approved or granted credit limit
- Disputed receivables (commercial disputes over goods/services)
- Political risks in export markets (covered under export credit insurance)
- Losses arising from the policyholder's own breach of contract
- Receivables not declared/reported within the contractual deadlines
Concept
Trade credit insurance protects businesses against the loss of receivables arising from goods or services supplied that can no longer be collected due to a customer’s insolvency or persistent default. It is a central instrument of receivables management, particularly for companies with substantial trade credit exposure to their customers.
Scope of Cover and Credit Assessment
As part of the cover granted, trade credit insurers generally also perform ongoing creditworthiness monitoring of insured buyers and set individual credit limits for each customer up to which receivables are insured; this combination of risk transfer and credit information distinguishes trade credit insurance from purely financial products such as factoring. Where the insurer’s standard limit is insufficient for a particular buyer, cover can often be extended through a separate top-up facility above the standard credit limit.
Prevention, Early Warning Indicators and Debt Collection
Beyond pure risk transfer, trade credit insurance also supports the policyholder’s receivables management on a preventive basis: insurers frequently offer standalone credit assessment and monitoring services that rate business partners on a standardised scale (e.g. from 1, “excellent creditworthiness”, to 10, “insolvent”) and monitor them continuously, so that a deteriorating rating serves as an early warning indicator before any credit limit is reduced. If a receivable nevertheless becomes overdue, the policy typically requires the policyholder to refer it for debt collection within a contractual deadline; only once the receivable remains unpaid despite collection efforts for a defined period (commonly 90 days) does the insured non-payment event arise. Many trade credit insurers offer debt collection as an integrated service, so that credit assessment, risk transfer and receivables collection are provided from a single source.
Distinction from Export Credit Insurance
While traditional trade credit insurance primarily covers domestic business and short-term export receivables in economically stable markets, export credit insurance additionally covers political risks (e.g., payment moratoria, war, expropriation) that are particularly relevant for exports to emerging and developing markets and are frequently covered through state-supported export credit agencies.
Comparison and delineation
Trade credit insurance is frequently complemented by surety bond insurance: the former protects a supplier’s own receivables against a buyer’s non-payment, while the latter allows a company to furnish contractual or statutory security to a third party without tying up cash or bank lines, so the two are commonly held side by side rather than as substitutes. Both draw on the insurer’s credit assessment expertise, but trade credit insurance transfers genuine insolvency risk, whereas surety bond insurance is economically closer to a credit facility with a right of recourse against the principal.