When it comes to risk management, most business owners immediately think of physical threats—like fires, floods, or tornadoes—or liability concerns such as auto accidents. While those are important, there’s another category of risk that often flies under the radar: financial risk tied to your accounts receivable.
If your business sells goods or services on credit, you’re already familiar with the risk that a customer might delay payment—or not pay at all. Even a single unpaid invoice can seriously affect your cash flow, especially for small to mid-sized businesses. That's why it's crucial to manage receivables proactively—not just by chasing down payments, but by protecting them.
Enter Trade Credit Insurance
One of the most effective—but lesser known—tools for protecting your accounts receivable is Trade Credit Insurance (TCI).
What is Trade Credit Insurance?
Trade Credit Insurance protects your business if a customer fails to pay due to insolvency, bankruptcy, or political risk (for international clients). It acts like a financial safety net for your sales.
How does it work?
The insurance companies offering this type of coverage act as a backroom credit department for you, using their worldwide database to perform credit checks on businesses before you decide to extend credit or more favorable terms. Insuring your receivables can often give you leverage in negotiating rates and collateral with lenders.
It can also help manage the risk of growing globally and selling to new customers you don’t have a relationship with. But most importantly, it can protect your balance sheet if one of your largest customers were to default on a payment.
Premiums start at $10,000 and typically range between 0.1% and 0.5% of sales from customers you wish to insure. Policies are flexible, allowing you to structure your entire customer portfolio, or your top 20% or export customers only for example. For many businesses, the peace of mind and strategic growth potential far outweigh the cost.
Trade credit insurance is a powerful, often underutilized tool that helps fill that gap. In an unpredictable economic climate, that kind of coverage can be the difference between a temporary setback and a major financial loss.
If you’re interested in learning more about TCI, contact us!
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