Our Biggest Customer Went Bankrupt Owning Us $500k: Trade Credit Insurance Paid Us!
The “Too Big to Fail” Client Who Failed
My company manufactures parts for a major, well-known retail chain. They were our biggest and most reliable customer, accounting for 40% of our revenue. We never worried about them paying their bills. Then, the unthinkable happened: they abruptly filed for bankruptcy, owing us over $500,000 for products we had already delivered. It would have crippled our company. But our Trade Credit insurance policy was designed for this exact scenario. After the waiting period, our insurer paid us 90% of the insured debt, a payment that saved our business from insolvency.
Get Paid Even If Your Customers Don’t: Trade Credit Insurance Explained
The Insurance Policy for Your Invoices
When you sell a product or service to another business on credit, you’re essentially giving them an interest-free loan. You deliver the value upfront and trust they will pay you in 30, 60, or 90 days. But what if they don’t? What if they go bankrupt or simply disappear? Trade Credit insurance is a policy that protects your accounts receivable. If a customer defaults on their payment due to insolvency or other specified reasons, the insurance policy pays you a large percentage of the unpaid invoice. It’s a safety net for your sales.
Protecting Your Accounts Receivable from Customer Default or Bankruptcy
Your Biggest Asset is Uninsured. Here’s How to Fix It.
For many B2B companies, their single largest asset isn’t their building or their inventory; it’s their accounts receivable—the money their customers owe them. We insure our building against fire and our trucks against accidents, but most companies leave their biggest asset completely unprotected. Trade Credit insurance is the tool that fixes this. It specifically protects that crucial asset from the risk of customer default. It transforms your vulnerable, uninsured receivables into a much safer, insured asset, strengthening your entire balance sheet.
How Trade Credit Insurance Can Help You Offer Better Payment Terms & Grow Sales
The Competitive Edge That Insurance Gave Us
My startup was competing against a huge, established rival. We couldn’t compete on price, so we decided to compete on terms. Our rival demanded payment in 30 days. Because we had Trade Credit insurance, our insurer approved a high credit limit for a major new customer. This gave us the confidence to offer them 90-day payment terms. The customer was thrilled with the improved cash flow and gave us the contract. Our insurance policy didn’t just protect us from loss; it became a powerful sales tool that helped us win new business.
Who Needs Trade Credit Insurance? (Businesses Selling on Credit Terms!)
If You Send Invoices, You Have This Risk
I once thought Trade Credit insurance was only for huge exporters. My accountant set me straight. He asked me, “Do you sell to other businesses and send them an invoice that’s due later?” I said yes. “Then you have credit risk,” he replied. It doesn’t matter if your customer is across the street or across the ocean. Any business that sells to another business on anything other than cash-on-delivery terms is exposed to the risk of non-payment. This insurance is for any company with a B2B accounts receivable ledger.
Single Buyer vs. Whole Turnover Policies: Choosing Your Trade Credit Coverage
Insuring One Big Whale vs. The Whole Ocean
My company has two types of customers. We have hundreds of small, regular buyers, and one giant customer that makes up 50% of our sales. For our small buyers, we use a “Whole Turnover” policy, which covers our entire portfolio of insured sales. But for our one “big whale,” we bought a separate “Single Buyer” policy with a much higher limit. This gave us the maximum possible protection against our single largest source of risk, while still efficiently covering the rest of our customer base.
Comparing Trade Credit Insurance Providers: Credit Limits, Waiting Periods, Costs
Not Just an Insurer, but a Credit Intelligence Partner
When we shopped for Trade Credit insurance, we realized we were getting more than just a policy. The insurers had incredible credit intelligence capabilities. Before they would approve a credit limit for one of our customers, their analysts would do a deep dive into that customer’s financial health. We learned that a good provider doesn’t just pay claims; they help you avoid them in the first place by providing real-time data on the creditworthiness of your customers and prospects. We chose the provider with the best intelligence platform.
How Much Does Trade Credit Insurance Cost? (% of Insured Sales)
The Small Percentage That Protects the Whole
I was worried Trade Credit insurance would be prohibitively expensive. My broker explained that the cost is typically calculated as a small percentage of your total insured sales. For our portfolio of relatively low-risk domestic customers, our premium was about 0.25% of our revenue. So, on $4 million of insured sales, our annual premium was about $10,000. When you consider that the policy protected us from a potential single loss of hundreds of thousands of dollars, that small percentage was an incredible value.
Filing a Trade Credit Claim: Proving Non-Payment After Due Diligence
The Paper Trail is Everything
When one of our customers stopped paying their bills, we had to file a claim with our Trade Credit insurer. The process was rigorous. First, we had to show that we had followed our own credit policy—we had a signed contract and had checked their references. Then, we had to prove we had made reasonable efforts to collect the debt ourselves. After the policy’s 180-day waiting period passed and the debt remained unpaid, we submitted our claim with all the documentation. The insurer paid us 90% of the invoice.
Does Trade Credit Insurance Cover Political Risk Non-Payment? Sometimes (Endorsement!)
When Your Customer Wants to Pay, But Their Government Says No
My company exported goods to a customer in South America. The customer was profitable and wanted to pay us, but their government suddenly imposed strict currency controls, making it impossible for them to convert their local currency to U.S. dollars to pay our invoice. My standard Trade Credit policy didn’t cover this, as my customer hadn’t become insolvent. For this, I would have needed a separate Political Risk endorsement. It’s a crucial distinction for exporters: is your customer unwilling to pay, or are they unable to pay due to political events?
My Experience Using Trade Credit Insurance to Secure Bank Financing
The Insurance That Unlocked a Bigger Line of Credit
My company was trying to get a larger line of credit from our bank to fuel our growth. The bank was hesitant, noting that our biggest asset was our accounts receivable, which they saw as risky. I told them our receivables were insured. I showed them our Trade Credit insurance policy. The bank’s entire attitude changed. Because our receivables were now insured by a major carrier, the bank saw them as a much safer, “bankable” asset. They approved the increased credit line the next day.
Understanding Discretionary Credit Limits vs. Named Buyer Limits
The Power to Make My Own Credit Decisions
My Trade Credit policy gives me a “Discretionary Credit Limit” of $50,000. This means that for any customer, I have the authority to extend up to $50,000 of credit without needing the insurer’s pre-approval, as long as I follow my own documented credit procedures. For my largest customer, to whom I extend $250,000 in credit, I had to submit their financials to the insurer to get a specific “Named Buyer Limit.” This hybrid approach gives me flexibility for my smaller accounts while ensuring my biggest risks are fully vetted by the experts.
Protecting Your Business from the Domino Effect of Customer Insolvency
When One Customer’s Bankruptcy Takes Down Its Suppliers
I saw a competitor in my industry go out of business last year. It wasn’t because their product was bad; it was because their single biggest customer, a major retailer, went bankrupt. The loss of that one account created a massive hole in their cash flow, and they couldn’t recover. It was a terrifying domino effect. This is the exact chain reaction that Trade Credit insurance is designed to prevent. It acts as a financial circuit breaker, ensuring that one customer’s failure doesn’t cascade through the supply chain and take you down with it.
What Trade Credit Insurance DOESN’T Cover (Disputes Over Goods/Services?)
“I’m Not Paying Because Your Product Was Defective!”
A customer refused to pay their $30,000 invoice. I tried to file a Trade Credit claim, but it was denied. The reason? The customer wasn’t insolvent; they were disputing the quality of the goods I had delivered. My policy is designed to cover non-payment due to financial default, not commercial disputes. The insurer told me that until the quality dispute was resolved in my favor, there was no covered claim. It was a clear lesson that the policy protects against your customer’s inability to pay, not their unwillingness to pay due to a disagreement.
Trade Credit Insurance: De-Risking Your Sales and Boosting Cash Flow
The Safety Net That Lets You Sell More
Every time you extend credit to a customer, you are taking a risk. This fear can cause businesses to be overly cautious, demanding strict payment terms and turning away potentially great customers who need more flexibility. Trade Credit insurance removes that fear. By putting a safety net under your accounts receivable, it gives you the confidence to extend more credit, offer more competitive terms, and pursue larger customers. It’s a defensive tool that allows you to play offense more aggressively.