Trade credit insurance: protecting receivables from customer default

Trade credit insurance pays a business a set percentage of its unpaid commercial invoices when a customer becomes insolvent or fails to pay within the agreed terms. Wholesalers, manufacturers and other companies that sell on open account (ship first, invoice later) use it to protect cash flow, to win a bigger borrowing base from a lender and to sell more aggressively to customers they cannot fully vet. It is a credit product, not a liability policy, and it differs from ocean marine and cargo insurance: how shipment and vessel coverage works, which covers goods in transit rather than the customer's ability to pay. It is sold by specialist insurers and, for U.S. exporters, by the Export-Import Bank of the United States (EXIM).

What it covers and what it does not

A policy insures trade receivables: amounts owed for goods delivered or services rendered on credit terms, usually due within a year. The covered causes are set in the policy's general terms. According to EXIM's description of a typical contract, those are insolvency, protracted default and political risks, with the policy defining when cover starts for each receivable (typically at delivery or performance of the service).

• Insolvency. The buyer files for bankruptcy or an equivalent proceeding, or an insolvency event named in the policy occurs.
• Protracted default. The buyer simply does not pay within the contracted terms plus a waiting period set by the policy.
• Political risk. Optional on many policies. It covers losses from government action such as war, currency inconvertibility or import bans. See political risk insurance: what it covers and who needs it.

Typical carve-outs include disputed invoices (a customer who claims the goods were defective is not an insolvent debtor), sales to companies you own or control, sales to sanctioned persons or countries, sales outside the countries or payment terms in the schedule and invoices beyond your credit limit for that customer. Some private policies also exclude government buyers.

How the policy is structured

EXIM's trade credit guidance describes a typical contract as an umbrella policy with three parts: a schedule, general terms and conditions, and customer-specific clauses. Read them in that order.

Policy types. A whole-turnover policy covers all customers (domestic, export or both) and pools the risk. Key-account or named-buyer policies cover your largest customers. A single-buyer or single-contract policy covers one customer or transaction. AIG's trade credit page describes non-cancelable limit coverage for an entire receivables portfolio, selected buyers or a single buyer, and says its structures typically include co-insurance, deductibles or both. A narrow selection of buyers costs more per dollar insured than a whole-turnover book because the insurer gets less pooling and worries about adverse selection.

Buyer credit limits. The insurer assigns a limit for each customer after reviewing that customer's finances, and the policy pays only for sales inside that limit. Limits are not guaranteed for the policy term: insurers can reduce or withdraw them when a buyer's finances change, and the change typically applies to future shipments. A policy with a discretionary limit lets you approve small accounts yourself, and a non-cancelable limit gives you more certainty at a price.

Insured percentage and deductible. Insurers do not reimburse 100% of a loss. EXIM's multi-buyer policies cover both commercial and political risks at 95% for most buyers, 100% for sovereign buyers and 98% for bulk agricultural commodity exports. Allianz Trade says a private policy can indemnify up to 95% of the debt owed, and the percentage, the deductible and any aggregate cap sit in the policy's schedule. The uninsured slice is deliberate: you keep a stake in collecting, which is a form of retention.

EXIM export credit insurance

A U.S. exporter that sells abroad on open account can look to EXIM (and should settle who insures the goods first; see incoterms and who insures goods in transit), which describes its export credit insurance as covering commercial and political losses on foreign receivables, with the insurer paying if the buyer does not. The following EXIM details come from its website, checked in October 2026.

• Multi-Buyer Express is aimed at small businesses new to exporting, with up to $10 million of export credit sales, up to 10 buyers and no more than five years of export credit experience. It has no discretionary credit limits.
• Multi-Buyer Small Business is for small businesses that meet the SBA definition and have up to $10 million of export credit sales. It has no first-loss deductible.
• Multi-Buyer Standard and Select Risk are for experienced exporters, with deductibles based on experience and spread of risk.
• Premium. EXIM publishes rates per $100 insured. For private buyers under the Small Business policy the rate is $0.55 for payment terms of 1 to 60 days, $0.90 for 61 to 120 days and $1.15 for 121 to 180 days. There is no application fee and no annual minimum premium, but a $500 refundable deposit applies.
• Financing. EXIM says lenders may include insured foreign receivables in the borrowing base, and claim payments can be assigned to a financial institution.

Single-buyer, letter-of-credit and medium-term policies are also available. Exporters should price EXIM against private cover for the same book.

Private insurers and what they say about price

Insurers with U.S. trade credit programs include Allianz Trade, Atradius and AIG, which says its program is available for domestic and foreign receivables. Premiums are generally a small percentage of insured sales, set by sales volume, industry, buyer quality, payment terms, countries and the coverage level. Allianz Trade says that in many cases credit insurance costs less than 0.5% of turnover. Atradius says its pricing starts from a small percentage of annual sales, and offers different products by company size, one with a $200,000 cap on normal trading receivables for domestic small and medium businesses. Those are insurer statements, not quotes. Your price depends on your buyers.

The market in 2026

The pricing cycle is soft while insolvency risk rises. Marsh, writing on May 26, 2026, reported that average trade credit rates were down 9.2% year to date, that claim counts in its data fell from 227 in 2023 to 136 in 2025 while total claim value rose 9.4% to $438.5 million, and that it saw a buying opportunity that may not last. Allianz Trade's April 22, 2026 insolvency report forecast global business insolvencies to rise 6% in 2026 and to stay high in 2027, and said a prolonged Middle East conflict could push the 2026 figure to 10%. A soft market is a good time to renew, to extend the term and to review credit limits, but expect insurers to retighten when losses appear.

Worked example (hypothetical)

Say a Georgia building-products distributor sells $20 million a year on 45-day terms to about 120 contractors. A whole-turnover policy has a 90% insured percentage, a $50,000 deductible per loss applied after the percentage, and a $500,000 credit limit on its largest customer. That customer owes $400,000 when it files for bankruptcy.

• Insured loss: $400,000 owed, within the credit limit.
• Insurer pays 90%: $360,000, less the $50,000 deductible, or $310,000.
• The distributor absorbs $90,000, made up of its $40,000 co-insured share and the $50,000 deductible, and keeps its rights against the estate for the unpaid portion, subject to the insurer's recovery share.

Had the insurer cut the limit to $300,000 before the distributor shipped the last $100,000 of that balance, that $100,000 would sit outside the policy. These figures are invented. The order in which the percentage and deductible are applied differs from policy to policy.

Where it fits in risk management

Credit risk travels through supply chains, so a distributor's exposure to a failing customer is often one more strand of supply chain risk and insurance: what is covered and what is not, alongside cargo, supplier and political exposures.

Before you buy

1. Aggregate your exposure. List customers by balance and payment terms, and flag concentration.
2. Decide what you are insuring. Whole turnover, selected buyers or one contract. A narrower selection costs more per dollar insured.
3. Ask for the schedule and specimen wording early. Compare covered percentage, deductible, maximum liability, waiting period, maximum credit period and the notice you must give of overdue accounts.
4. Test the claims process. Ask what proof of debt is needed and how the insurer treats disputes.
5. Plan the lender angle. If financing is the goal, ask whether the lender will recognize the policy, and whether you need to name the lender as loss payee or assign proceeds.
6. Compare alternatives. Letters of credit or cash in advance shift the risk to the buyer. Factoring sells the invoice, whereas an insurer will not buy invoices or advance cash against them. For project and contract performance, surety is a different tool (surety bonds explained: how they differ from insurance).

Key takeaways

• Trade credit insurance reimburses a percentage of unpaid receivables after a buyer's insolvency or protracted default, subject to a credit limit on each buyer and a deductible.
• Disputes, related-party sales, sanctioned buyers and invoices above the limit are typical exclusions.
• U.S. exporters can buy EXIM cover, whose Multi-Buyer policies insure commercial and political risks at 95% for most buyers; private insurers serve domestic and export books.
• Pricing is soft in 2026 but insolvencies are rising, so negotiate term and limit commitments now and expect the cycle to turn.