INSURANCE GUIDE Trade Credit Insurance UK - protection against customer non-payment |
TL;DR
- Trade credit insurance protects businesses against losses from customers who fail to pay invoices due to insolvency or protracted default (long-delayed payment without insolvency).
- Insurers assess and monitor the creditworthiness of the insured business customers and set credit limits for each buyer.
- Policies typically cover 75% to 90% of the invoice value, with the insured retaining the remaining percentage as a co-insurance element.
- Trade credit insurance is most valuable for businesses with concentrated customer bases, thin margins, or significant exposure to a few large accounts.
- Annual premiums are typically 0.1% to 0.5% of the annual insured turnover depending on the customer risk profile and sector.
Last reviewed: June 2026
KEY FACTS | |
| What it covers | Loss from customer insolvency or protracted default on trade invoices - typically 75% to 90% of invoice value |
| How credit limits work | Insurer assesses each buyer and sets a credit limit - invoices above the limit are not covered unless the limit is increased and approved |
| Protracted default | Non-payment beyond a specified period (typically 180 days past due date) without formal insolvency proceedings |
| Co-insurance | Insured retains 10% to 25% of each loss - aligns interests and encourages credit management discipline |
| Who provides it | Atradius, Euler Hermes (Allianz Trade), Coface, and QBE are the principal UK trade credit insurance providers |
| Annual premium range | 0.1% to 0.5% of insured annual turnover - a business with GBP 5 million annual turnover might pay GBP 5,000 to GBP 25,000 |
What Is Trade Credit Insurance?
Trade credit insurance (TCI), also called credit insurance or debtor insurance, protects businesses that sell goods or services on credit terms (invoicing customers for later payment) against the risk that those customers will not pay. The two main covered events are customer insolvency (formal insolvency proceedings including administration, liquidation, or CVA) and protracted default (failure to pay within a specified extended period, typically 180 days past the due date, without entering formal insolvency).
TCI is most relevant for businesses that extend significant credit to their customers and would face material financial harm if one or more customers failed to pay. A single bad debt from a large customer can absorb months of profit for an SME with thin margins. TCI converts this unpredictable credit risk into a known insurance cost.
KEY FACTS
|
How Trade Credit Insurance Works
When a business takes out TCI, the insurer assesses the creditworthiness of each customer (buyer) and sets a credit limit - the maximum amount of outstanding invoices to that buyer that is covered at any one time. The credit limits for all buyers are set out in the policy schedule. If the buyer fails to pay within the agreed terms and the insurer is notified, a claim can be made after the specified waiting period (typically 180 days for protracted default).
The insurer typically pays 75% to 90% of the net invoice value, with the insured retaining the remaining percentage. This co-insurance element aligns the insured incentive to manage credit carefully. The claim payment is made after the waiting period and after any recovery action has been attempted.
Ongoing credit management is an important feature of TCI. The insurer actively monitors the financial health of buyers and can reduce or withdraw credit limits if a buyer credit position deteriorates. This early warning function is one of the most valuable aspects of TCI beyond the insurance itself - it alerts the insured to potential problems before they materialise as bad debts.
Who Needs Trade Credit Insurance?
TCI is most relevant for businesses that: extend significant credit to customers (sell on invoice terms of 30, 60, or 90 days); have concentrated customer bases where a small number of accounts represent a large proportion of revenue; operate in sectors with higher insolvency risk (construction, retail, manufacturing); have thin margins where a single bad debt would wipe out months of profit; or export to international markets where political and transfer risk compounds commercial credit risk.
How Much Does Trade Credit Insurance Cost?
Annual premiums are typically expressed as a rate on the insured annual turnover. Indicative 2026 rates:
- Domestic trade, diversified customer base, low-risk sector: 0.10% to 0.20% of insured turnover
- Domestic trade, construction or retail sector: 0.20% to 0.40%
- International trade including export: 0.25% to 0.50%
Related Guides |
Disclaimer: This guide is for general information only. Kael Tripton Ltd is not authorised or regulated by the FCA. Always verify details with an FCA-authorised insurer or broker before purchasing. |
Frequently Asked Questions
What is the difference between trade credit insurance and invoice factoring?
Invoice factoring (or invoice finance) advances cash against outstanding invoices - the factor purchases the invoice at a discount and collects the payment from the customer. Trade credit insurance protects against the risk of non-payment but does not advance cash. The two products are complementary: TCI protects the value of the invoice book; invoice finance converts it to immediate cash. Some invoice finance facilities include or require TCI.
Does TCI cover all my customers?
Coverage depends on the credit limits approved by the insurer for each buyer. The insurer assesses each customer and sets a limit. Where no limit is approved (the insurer is unwilling to cover that buyer), invoices to that customer are uninsured. The insurer can also reduce or withdraw limits during the policy year if a buyer credit position deteriorates. Effective TCI management requires monitoring credit limits and avoiding over-exposure to uninsured buyers.
What is a protracted default and how long do I have to wait?
Protracted default is the failure of a buyer to pay invoices beyond a specified extended period, without entering formal insolvency proceedings. The standard waiting period for a protracted default claim is typically 180 days (6 months) from the invoice due date. Some policies set shorter or longer periods. After the waiting period, if the invoice remains unpaid, a claim can be submitted to the insurer.
Does trade credit insurance cover export sales?
Standard UK domestic TCI policies can often be extended to cover export sales. Export credit insurance additionally covers political risks specific to international trade - government actions preventing payment, import restrictions, and transfer risk. UK Export Finance (UKEF) is the government body providing export credit insurance and guarantees for UK exporters, complementing the commercial market.
Can I get TCI for a single large customer rather than my whole book?
Single buyer or named buyer TCI is available for businesses with concentrated exposure to one or a small number of customers. This is an alternative to whole turnover TCI for businesses that only need protection for specific relationships. Premiums for single buyer cover are typically higher as a percentage of the covered exposure than whole turnover policies.
Sources |
