Glossary · product

Credit Insurance

Also called trade credit insurance, accounts receivable insurance, buyer credit insurance.

A policy covering non-payment by your customers, used by sellers to protect a concentrated receivables book and by factors and asset-based lenders to make a receivable eligible or to raise the advance against it.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

The insurer underwrites your customers, not you. It sets a credit limit for each approved buyer, and covers a stated percentage of an insured loss when that buyer fails to pay for a covered reason.

Core mechanics

  • Buyer limits. Each customer is assigned a limit; sales above it are uninsured. Limits can be reduced or withdrawn by the insurer during the policy period, sometimes at short notice
  • Covered events. Typically the buyer's insolvency, and protracted default — non-payment persisting for a defined number of days past due
  • Coinsurance and deductible. The policy pays a percentage of the loss, commonly with an annual aggregate first loss retained by you
  • Conditions precedent. Credit control procedures, notification of overdue accounts within a stated number of days, and steps to collect. These are conditions, not suggestions

Why it appears in a finance file

An asset-based lender may raise the advance rate on insured receivables, or relax a concentration limit for a customer whose exposure is covered. A factor may use a policy behind what it markets as non-recourse factoring. The lender is usually named as loss payee or the policy proceeds are assigned, so a claim payment goes to reduce the facility.

Where this one catches people

"Non-recourse" in factoring frequently means credit insurance wearing a different label, and the exclusion list is where the protection ends. Cover normally responds to the buyer's insolvency or protracted default. It does not respond to a dispute. A customer who refuses to pay because of an alleged shortage, defect, late delivery or backcharge has raised a dispute, the invoice becomes chargeable back to you, and that is precisely the situation most receivables actually fail in.

Read four things in any policy standing behind a facility: the definition of the insured event, the buyer limit schedule and how limits can be withdrawn, the notification deadlines for past-due accounts, and the coinsurance. Missing a notification deadline voids the claim on that invoice, and the deadline is measured in days from the due date rather than from when you decided the account was a problem. Diary it into your collections process, because nobody else will.

Where you will meet this term

Working Capital Invoice Financing Asset-Based Lending

Read next

Advance rateThe share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and… ConcentrationHow much of a business's revenue or receivables depends on a single customer, and the cap funders place on ho… DilutionThe gap between what a business invoices and what it eventually collects, caused by credits, returns, allowan… Eligible receivableAn invoice that counts toward the borrowing base because it passes the lender's tests on age, customer, conce… InsolvencyBeing unable to pay debts as they fall due, or owing more than you own — two different tests, either of which… Insurance requirementA contractual obligation to carry specified coverage naming the lender in a specified capacity, enforceable a… Invoice factoringSelling receivables to a third party at a discount for immediate cash, with the buyer taking over collection … Loss payeeThe party named on a property insurance policy as entitled to claim proceeds up to its interest — how a secur… Non-recourseA structure in which the funder cannot come back to the client for repayment if the underlying obligation goe… RecourseThe funder's right to come back to the client when the underlying obligation goes unpaid - in factoring, the …

Credit Insurance — common questions

What does credit insurance mean?

A policy covering non-payment by your customers, used by sellers to protect a concentrated receivables book and by factors and asset-based lenders to make a receivable eligible or to raise the advance against it.

Where does credit insurance catch people out?

"Non-recourse" in factoring frequently means credit insurance wearing a different label, and the exclusion list is where the protection ends. Cover normally responds to the buyer's insolvency or protracted default. It does not respond to a dispute. A customer who refuses to pay because of an alleged shortage, defect, late delivery or backcharge has raised a dispute, the invoice becomes chargeable back to you, and that is precisely the situation most receivables actually fail in.

Is credit insurance the same as an interest rate?

Credit Insurance is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does credit insurance apply to?

Working Capital, Invoice Financing, Asset-Based Lending.

Is there a worked example of credit insurance?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside credit insurance?

Advance rate, Concentration, Dilution, Eligible receivable, Insolvency.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.