Trade credit insurance is a type of coverage that protects businesses against the financial risks of customer non-payment. If a buyer defaults or delays payment due to bankruptcy, insolvency, or other financial issues, trade credit insurance compensates the seller, ensuring stability in cash flow despite customer payment issues.

Types of Trade Credit Insurance Coverage

Businesses can customize trade credit insurance policies to cover specific aspects of credit sales risks. Here are the main types of credit insurance available:

1. Whole Turnover Insurance

• Coverage: Protects all open credit transactions across a business’s entire customer portfolio.

• Best For: Businesses seeking broad protection across all accounts, reducing the financial impact if multiple customers default.

2. Key Accounts Insurance

• Coverage: Covers only the largest, most crucial customer accounts that contribute significantly to revenue.

• Best For: Companies dependent on a few major customers, safeguarding the business from losses if one of these key clients defaults.

3. Single Buyer Insurance

• Coverage: Focuses on transactions with a single, high-value customer, particularly when the exposure to this client is considerable.

• Best For: Companies with substantial dealings involving a single customer, offering focused protection where the default risk is highest.

4. Excess of Loss Insurance

• Coverage: Manages severe losses above a set threshold, with a shared-risk approach for catastrophic financial hits.

• Best For: Businesses willing to absorb smaller losses, opting for insurance only against large, unforeseen defaults.

5. Insurance for Financial Institutions

• Coverage: Tailored for financial institutions, covering risks associated with services like factoring and invoice discounting.

• Best For: Banks and lenders, providing protection across a diverse client base, particularly for short-term credit facilities.

6. Export Credit Insurance for Long-Term Risks

• Coverage: Typically extends for seven years or more, covering medium- and long-term export risks, including political factors.

Best For: Companies involved in international contracts and infrastructure projects, with added protection for political risks.