Trade Credit Insurance: Protecting Your Business from Non-Payment Risks

In today’s uncertain economic climate, businesses face increasing financial risks due to customer insolvencies, late payments, and economic disruptions. Trade credit insurance (TCI) is a crucial financial tool that helps companies mitigate these risks by protecting accounts receivable from non-payment. Whether you operate in the food industry, manufacturing, or global trade, TCI provides stability, ensuring uninterrupted cash flow and business growth.

This article explores why trade credit insurance is essential, how it works, its benefits, and why businesses—especially those in food distribution and global trade—should consider it as part of their risk management strategy.

What Is Trade Credit Insurance?

Trade credit insurance, also known as accounts receivable insurance or debtor insurance, protects businesses from losses caused by customers failing to pay for goods or services. This insurance covers unpaid invoices due to customer bankruptcy, default, or political risks in global markets.

Unlike traditional liability insurance, TCI directly safeguards your company’s revenue and ensures your business can continue operating without cash flow disruptions. It’s particularly valuable in industries like food distribution, where margins are tight, and timely payments are essential for financial stability.

How Does Trade Credit Insurance Work?

Trade credit insurance policies function as a financial safety net for businesses, offering protection in three key areas:

1. Assessment of Credit Risk
   • Insurers evaluate your customers’ creditworthiness and assign coverage limits based on their financial health.
   • This enables businesses to extend credit confidently, knowing they are covered if a customer defaults.
2. Coverage Against Non-Payment
   • If a customer fails to pay an invoice due to bankruptcy, protracted default, or economic instability, the insurer reimburses a percentage of the unpaid amount (typically 75%-95%).
3. Business Growth & Market Expansion
   • With financial security in place, businesses can pursue larger contracts, enter new markets, and extend better credit terms to customers without fear of cash flow disruptions.

Key Benefits of Trade Credit Insurance

1. Ensures Cash Flow Stability

Unpaid invoices can create serious cash flow challenges. TCI ensures businesses receive payments, even when customers default, preventing financial instability.

Example:

• A U.S.-based food importer extended $500,000 in credit to a European distributor. When the distributor declared bankruptcy, TCI covered 90% of the unpaid amount, preventing significant losses.

2. Expands Business Growth Opportunities

With trade credit insurance, companies can confidently extend credit to new customers and enter new markets without assuming excessive financial risk.

Example:

• A U.S. food distributor wants to expand into Latin America but is concerned about economic instability. By securing TCI, the distributor reduces the risk of non-payment and confidently increases exports.

3. Reduces the Need for Bad Debt Reserves

Companies often set aside reserves to cover potential bad debts. Trade credit insurance allows businesses to reduce these reserves and reallocate funds toward growth.

Financial Impact:

• Instead of holding 5% of annual revenue in a bad debt reserve, a business with TCI redirects funds to R&D, marketing, or expansion.

4. Improves Financing and Lending Terms

Banks and financial institutions favor insured receivables, often offering better loan terms and increased borrowing capacity for businesses with TCI.

Example:

• A wholesaler with insured accounts receivable secures a $1 million credit line at lower interest rates, enhancing liquidity and operations.

5. Mitigates Political and Global Trade Risks

For businesses engaged in international trade, political instability, trade restrictions, and foreign exchange risks can lead to payment issues. Trade credit insurance provides protection against geopolitical disruptions.

Example:

• A U.S. exporter faces delayed payments from a supplier in a politically unstable country. TCI covers the unpaid invoices, preventing losses from unpredictable political events.

Why Trade Credit Insurance Is Essential for the Food Industry

The food and beverage industry faces unique risks, including perishable goods, market fluctuations, and strict regulations. Trade credit insurance is especially valuable for food manufacturers, distributors, and wholesalers because:

• Supply chain disruptions can delay payments from retailers and suppliers.
• Supermarkets and restaurants operate on credit, increasing non-payment risks.
• Economic downturns affect consumer spending, impacting distributors.
• Food recalls and contamination events can cause financial strain on buyers.

By integrating TCI into a food business’s risk management strategy, companies gain financial security and flexibility, allowing them to navigate industry challenges with confidence.

How Much Does Trade Credit Insurance Cost?

The cost of trade credit insurance varies based on several factors:

• Industry and business size
• Customer creditworthiness
• Coverage limits and deductible choices
• Annual revenue and risk exposure

Typically, premiums range from 0.1% to 0.5% of covered sales, making it an affordable yet highly valuable investment for companies seeking financial security.

How to Choose the Right Policy

To select the best policy for your business:

1. Assess Your Risk Exposure – Determine how much of your revenue depends on a small number of customers.
2. Evaluate Your Customer Base – Identify high-risk clients with potential financial instability.
3. Compare Policy Options – Review coverage limits, premiums, and exclusions.
4. Work with a Trusted Provider – Choose an insurer with experience in food trade and international markets.

Why Trade Credit Insurance Is a Smart Investment

Trade credit insurance is not just about protecting against losses—it’s a tool for business growth and stability. It ensures consistent cash flow, better financing opportunities, and reduced financial risks, allowing companies to expand confidently.

By safeguarding accounts receivable, businesses can focus on strategic growth rather than worrying about customer defaults. Whether you’re a food distributor, manufacturer, or global exporter, trade credit insurance provides the security you need in today’s unpredictable business environment.

Discover Essential Insurance Insights with Us!

Since 1947, Coughlin Insurance has steadfastly stood by distributors, importers, and exporters, ensuring they are protected against the unpredictable nature of the food trade industry. As specialists who understand the nuances and vulnerabilities of the global food distribution network, we’ve fine-tuned insurance solutions to cater to this industry’s evolving dynamics. Our affiliations with the Association of Food Industries (AFI), National Frozen & Refrigerated Foods Association (NFRA), and the Peanut And Tree Nut Processors Association (PTNPA), reinforce our commitment to safeguarding your business with unparalleled expertise. We ask you to consider a partnership where understanding meets action.

You may have been recommended to us by one of our many satisfied customers, or you may have searched online for “trade credit insurance near me.” However you found us, we’re happy to welcome you. To discuss your needs and objectives and how we can help your company, please contact JJ Van Aman, Vice President of Sales email: jj@coughlinis.com tel: 973-598-5884 or  reach out for a free insurance quote today!