Trade Credit Insurance

Fortuna Insurance understands how Trade Credit Insurance helps protect your business when customers don’t pay.

Key takeaways

Trade Credit Insurance protects your cash flow if customers don’t pay their invoices due to insolvency or protracted default.
It’s especially useful for businesses that sell on credit terms (e.g. 30, 45 or 60 days) and rely on a steady flow of debtor payments.
Policies can cover a single key customer or your whole debtor book, often paying up to around 90% of the unpaid debt (subject to excesses and limits).
With around $950 billion owing between Australian businesses at any time, unpaid debts are one of the biggest threats to small and medium businesses.
A specialist broker can help you structure the right cover, understand conditions, and support you at claim time, so the policy actually responds when you need it.

What is Trade Credit Insurance?

If you sell goods or services on credit (for example, “30 days to pay”), you’re effectively lending money to your customers until they pay their invoices. Trade Credit Insurance is designed to protect you if they don’t.

In simple terms, Trade Credit Insurance can pay out when a customer:

Becomes insolvent and can’t pay their debts, or
Fails to pay within a set period, known as protracted default.

Instead of absorbing the full bad-debt hit yourself, you may be able to claim a large portion of the unpaid invoice under your policy (typically up to around 90%, depending on your cover, limits and excess).

Who should consider Trade Credit Insurance?

According to Steadfast, any registered business that sells on credit terms – whether domestically, internationally, or both – should at least consider Trade Credit Insurance.

This includes:

Wholesalers and distributors
Manufacturers
Construction and trade suppliers
Importers and exporters
Service providers who invoice on terms

If a significant part of your working capital is tied up in unpaid invoices, a single large bad debt (or several smaller ones in a row) can seriously disrupt your cash flow. That’s exactly the risk Trade Credit Insurance is designed to manage.

Why businesses need Trade Credit Insurance

1. Cash flow protection

Australian businesses owe each other around $950 billion at any given time. That’s a huge amount of value sitting in debtor ledgers.

If one of your key customers fails, you don’t just lose the profit on that sale – you may lose the full invoice amount while still having to pay:

Wages
Rent or mortgage
Supplier accounts
Tax and loan repayments

Trade Credit Insurance is a way to protect that cash flow, so an unpaid invoice doesn’t bring otherwise healthy businesses undone.

2. Confidence to grow

Having Trade Credit Insurance in place can give you more confidence to:

Take on bigger orders
Open accounts for new customers
Expand into new markets or export countries

Some policies can help support financing arrangements too, because lenders may be more comfortable if your major debtors are insured.

3. Support with collections

Many Trade Credit Insurers partner with specialist debt collection agencies. In some cases, they’ll pursue overdue invoices on your behalf, and the policy can also cover the costs of recovery action.

This takes pressure off your team and can help you recover more, sooner.

4. Protection in uncertain economic times

Economic downturns, sector-specific slowdowns or supply-chain disruptions can all increase the risk of customers defaulting on payments. Steadfast highlights Trade Credit Insurance as one of the tools that can help businesses survive tough trading conditions by cushioning the impact of unpaid invoices.

How Trade Credit Insurance works in practice

Policies can be structured in different ways, including:

Single-buyer cover – insuring a large exposure to one major customer.
Whole-of-book cover – protecting a portfolio of debtors up to an agreed limit.
Comprehensive cover – for both domestic and export customers.
Excess of loss – generally for businesses with strong internal credit processes who want protection only for exceptional, larger losses.

Typically, you’ll:

Disclose your debtors (or debtor profile) when you take out cover.
Comply with policy conditions – such as invoicing within a set timeframe and following up overdue accounts.
Notify the insurer once invoices are overdue beyond the period specified in the policy.
Make a claim if the customer becomes insolvent or remains unpaid beyond the agreed waiting period.

In return, you may be able to recover a large portion of the unpaid amount, up to the policy’s limit and subject to any excess or deductible.

When is Trade Credit Insurance especially useful?

You might consider Trade Credit Insurance if:

You have a concentration risk (a few customers make up a big chunk of revenue).
You’re expanding rapidly, taking on bigger contracts or new customers.
You’re trading internationally and want protection against overseas defaults.
Your industry has long payment terms or extended working capital cycles.
You operate in a sector where defaults or insolvencies are becoming more common.

In these situations, the downside of one non-paying customer can be disproportionately large, and insurance can help absorb that shock.

How Fortuna Insurance can help you get the right cover

Trade Credit Insurance is not a simple, one-size-fits-all product. The fine print really matters: which customers are covered, what triggers a claim, how quickly you must invoice, how and when to notify the insurer, and what percentage of the debt will be paid in a claim.

A specialist insurance broker like us can help you by:

Understanding your business model – your customers, sectors, payment terms and cash-flow cycle.
Advising on structure – whether you need single-buyer cover, whole-of-book cover, comprehensive or excess-of-loss.
Comparing policies and insurers – to find options that align with your risk appetite and budget.
Explaining conditions and obligations – so your internal credit and invoicing processes support the policy (and don’t accidentally void a claim).
Supporting you at claim time – liaising with the insurer, collection agencies and other stakeholders to help you achieve the best possible outcome.

The Fortuna Insurance team can help you explore whether Trade Credit Insurance is appropriate for your business and how it can sit alongside your broader Business Insurance program.

If you’d like to know whether Trade Credit Insurance could help protect your cash flow, talk to the Fortuna Insurance team about a tailored review of your debtor risk and cover options.

Disclaimer: This blog is intended for general information purposes only. It does not take into account your specific needs or circumstances. For personalised advice, please speak directly to one of our qualified insurance professionals at Fortuna Insurance.