Trade credit insurance: when it really pays and when it costs too much

Let us begin with something that should make you think: we are writing about a product that takes work away from us. An insured receivable is usually paid by the insurer, which then pursues the debtor rather than us. Every well-chosen policy is a case that will never reach us. We write about it anyway because we would rather you heard this from us than from someone who earns commission when you sign.

Receivables insurance, also called trade credit insurance, works simply: you sell on deferred payment terms, and if the customer does not pay, you receive a payout from the insurer instead. It is a product for businesses that regularly sell on invoice with payment terms, rather than for consumers or a single invoice.

The mechanism that makes the biggest difference in day-to-day work is not the payout itself but transferring the burden of recovery. After compensation is paid, the claim usually passes to the insurer, which pursues it in its own name. You no longer have to call, send reminders or keep track of the limitation period. For many businesses, this is the real value of the policy, beyond the money itself.

This is where most disappointments arise, almost always from not reading the conditions carefully rather than from an insurer’s bad faith. The rules below are typical for this product category; the general terms of the specific agreement always determine the details.

• The insurer usually covers part of the debt, not all of it. You still lose the rest.
• Cover operates within the limit granted for a specific customer. Sales above the limit are uninsured, even while the policy remains in force.
• The limit may be reduced or withdrawn during the policy period, when the customer’s financial position deteriorates. This happens precisely when you need cover most.
• Invoices that are disputed are usually not covered. If the customer disputes quality or scope, the dispute must first be resolved.
• You must have the policy before the receivable starts to deteriorate. Insurance for an already overdue invoice does not exist.
• There are deadlines for reporting late payments. A late notification can prevent a payout.

It makes sense, if you regularly sell on invoice and your turnover is concentrated among a few large customers. The bankruptcy of just one can upend your year. The same applies to exports, where pursuing debts abroad independently is lengthy and costly, and when you need a stable basis for working capital finance.

It usually does not pay, if you sell mainly for advance payment or cash, have many small customers and diversified risk, issue invoices only occasionally, or your payment problems concern a few specific business partners you already know. In the last case, changing trading terms costs less than a policy.

• What percentage of the debt is actually paid out, and what remains my responsibility?
• How are limits assigned to my customers, and what happens if a limit is withdrawn during the policy period?
• Who handles recovery after a payout, and do I have any influence over it?
• By when must I report a late payment to retain cover?
• What happens to an invoice disputed by the customer?

We do not sell policies and are not an insurance distributor. We do not list product names, premiums or comparisons here because this activity is reserved for intermediaries entered in the Polish Financial Supervision Authority’s register. This text provides information about a product category and is neither an offer nor a recommendation.

If, after reading, you would like to speak to a licensed intermediary, mention it when submitting your case. We will connect you with an authorised partner and state clearly whether we receive any benefit from doing so.

Insurance protects against what has yet to happen. For invoices that have already gone unpaid, recovery is the only route, and that is our job. Submit your case online with what you have. We assess your prospects free of charge and charge success-based commission, with published bands from 6%.