Is trade credit insurance worth it?

25 July 2018 - 5 min read

There are four big considerations when deciding whether trade credit insurance is worth it for your business:

  • How much of a hit you could take if a client failed to pay you

  • Whether you extend credit to clients or plan to

  • The stability of you clients' businesses and the industries they work in

  • Your plans for growth or international expansion

You don’t have to be affected by all four to need trade credit insurance and by far the biggest consideration should be what would happen if a client could not pay an invoice.

It will be an individual decision for each business, weighing up the company’s appetite for risk. But it’s worth delving into the factors that influence businesses to get cover and some stats relating to this kind of insurance.

Trade credit insurance’s main purpose is to protect your business if a buyer fails to pay but the first point about how much of a hit you could take is more complicated than it seems.

You could frame it using sales and profit margin figures. For example, if your company has a 10% profit margin and a buyer fails to pay a £10,000 bill you would have to make an extra £100,000 to make up the shortfall. Think about how easily you could do that and whether it would create a drain on resources.

If a drop in revenue would threaten the viability of the business and your ability to cover costs then trade credit insurance may be worth considering.

You should take into account any reserves you have, how many clients you have and the size of their contracts. If you rely on one or two large buyers you may want to tailor trade credit insurance to cover just their contracts.

To put trade credit claims in perspective, the Association of British Insurers (ABI) says there were 3,966 claims in the first quarter of 2018 and insurers paid out a total of £54m. That means the average claim was for £13,616.

Although there are now a range of trade credit insurance options it has typically been aimed at larger companies.

Insurers are facing a record period of claims and interest in trade credit insurance, partly as a result of the collapse of management and construction firm Carillion.

If your business extends credit to clients, trade credit insurance can cover this risk. Without insurance in place, your business may be forced to withdraw the offer of credit to other companies if one buyer fails to pay.

And banks may be keen for you have to insurance if you have credit on your books. And it may influence the kind of financial products and terms they can offer you.

Trade credit can also play a role in supporting growth. Guaranteed income may be vital to building a business and insurance can be useful when entering new markets. Trade credit insurers offer market and company analysis alongside their financial products and can tailor policies to foreign currencies and languages.

The ABI say 74% of trade credit insurance policies cover businesses trading domestically while 22% cover businesses exporting goods abroad.

You should also think about the other things that may be a pro or con for trade credit insurance, including how much the premium will cost the stability of the industries you and your clients operate in.

How does trade credit insurance work?

Trade credit insurance is designed to cover some of the money owed to a business if a client or buyer fails to pay an invoice or pays significantly later than planned.

It can protect a business if one or more of its clients becomes insolvent or bankrupt. And if a business extends credit to its clients it can protect against bad debts.

To get cover a company would tailor a policy directly with an insurer or broker. It will need to decide how many deals or clients the policy covers, it could be one revenue stream or all sales, and how much of the debt the policy will cover. Trade credit insurers tend to cover 75% to 95% of an invoice.

Companies that offer trade credit insurance can provide additional services such as support with admin around an unpaid invoice or debt collection. They may also offer insight and analysis of new markets or businesses you may be considering working with.

Is trade credit insurance a traditional bank product?

Trade credit insurance has existed in some form for over 100 years but the privatisation of the short-term side of the Export Credits Guarantee Department in 1991 led to specialist providers springing up in the UK.

Because trade credit insurance is a business product it is not typically offered by high street banks.

Brokers can help find cover and there are a number of specialists banks and insurance companies who offer it.

These include Marsh, AIG, Euler Hermes, Coface, Towergate and Chubb.

How much does trade credit insurance cost?

Trade credit insurance policies can cost a few thousand pounds but the price will depend on the exact cover you need.

It’s designed to be tailored to your business needs. For example, your company could get a policy that covers one contract with one client or all your sales. It’s also possible to tailor the percentage of a debt it will cover, for example, it could cover 80% of the money owed to you. These factors will alter the cost of your cover.

Policies may come with an excess that could be in the hundreds or thousands of pounds.

The cost and excess levels may put some small businesses off but insurers are getting better at tailoring trade credit insurance to the needs of SMEs.

Who uses trade credit insurance?

A range of companies use trade credit insurance, they tend to be medium to large businesses but there are policies for SMEs.

Businesses may want to cover credit they offer customers, a single transaction or all their revenue.

According to the ABI, 74% of trade credit insurance policies cover businesses trading in the UK and 22% cover businesses exporting goods abroad.

Some companies may have taken the cover if they think their clients are at risk of insolvency at some point in the future or the industry they operate in is volatile.

Can you get trade credit insurance for small businesses?

Yes, a range of insurers and specialists can help secure trade credit cover for small businesses.

Companies like Towergate led the way in making trade credit insurance more accessible to SMEs and now a number of insurers are open to creating policies for smaller organisations.

It may not be suitable for every small businesses but brokers should be able to offer advice on whether the cover will work and where to get it.

The average payout for trade credit insurance in the first quarter of 2018 was over £13,000, which may give some indication of the size of deals that tend to be covered.

Can you get a trade credit insurance quote online?

We could not find any companies that offer an instant quote online. However, due to the nature of the cover and how it can be tailored you may be more likely to get an accurate price if you speak to a broker or insurer on the phone or in person.

You may be required to provide financial information about your business to get a price.


Digby Bodenham
UK engagement team lead

Digby is an experienced journalist in various fields but has specialised in insurance for more than six years. Before joining ManyPets in 2013 he was part of the editorial teams of various magazines, including Retail Week and Drapers. He has a degree in journalism and a cat called Potato.


This article was written by ManyPets. We were not paid to write it but we will receive commission if clicking on a link to one of the named insurers results in a reader taking out a policy with that insurer. We also charge for advertising space so a particular insurer may be highlighted in the article and, where insurers are listed, it can dictate where they appear in the list.