Navigating Trade Credit Risk in a Volatile World
You shipped the goods. They ghosted you. Now what?
Welcome to trade credit risk: the silent threat that can erode your cash flow, destabilise your supply chain, and leave your business entangled in legal battles across jurisdictions.
In an era where late payments are commonplace and insolvencies are rising, extending credit isn't merely a commercial decision; it's a strategic risk management choice. This is where Trade Credit Insurance (TCI) becomes indispensable and increasingly, expected.
🚩 What Is Trade Credit Risk?
Trade credit is one of the most common, and least understood, forms of financing in global business. When you deliver goods or services before receiving payment, you're not just making a sale. You're extending credit. And like any form of credit, it comes with risk.
Trade credit risk is the risk that your customer won’t pay their invoice on time (or at all). That might happen because:
They become insolvent (e.g. enter administration, liquidation, or bankruptcy)
They default or delay payment for extended periods (protracted default)
They’re affected by external shocks such as political upheaval, currency controls, or sanctions
Or, increasingly, they restructure their supply chain or capital stack, pushing unsecured creditors to the back of the queue
This isn't just an issue for exporters or those operating in frontier markets.
In 2025, global business insolvencies are expected to rise by another 6%, on top of a 10% jump in 2024. This marks the fourth straight year of increases, driven by delayed interest rate cuts and lingering economic uncertainty. And it’s not just small businesses feeling the pressure. Large, publicly listed companies like Wilko in the UK and ProBuild in Australia have gone under in recent years, leaving tens of millions in unpaid receivables behind them.
The impact of non-payment doesn’t end with the balance sheet. It can:
Disrupt payroll, inventory, or capex planning
Strain supplier relationships when upstream payments are delayed
Trigger breaches of debt covenants or working capital ratios
Damage reputation if you're seen chasing struggling customers or writing off large debts.
And it’s not just about large exposures. According to Atradius, the average DSO (days sales outstanding) globally hit 59 days in 2024 and nearly 45% of businesses reported late payments as a regular challenge.
While many finance teams are laser-focused on customer acquisition costs, revenue growth, and net margins, the risk of not getting paid often gets overlooked until it's too late.
This is why trade credit risk sits at the intersection of finance, strategy, and governance. It’s not just who your customers are — it’s about how concentrated your exposure is, how well you monitor their creditworthiness, and what risk transfer tools you have in place when things go wrong.
🛡️ What Trade Credit Insurance Covers
Trade Credit Insurance (TCI) protects your accounts receivable, typically covering up to 90% of the invoice value when a customer fails to pay due to insolvency or protracted default. That’s often the difference between a short-term cash crunch and a full-blown solvency issue..
Cover usually applies to risks outside your control and unrelated to performance disputes. These include:
Insolvency: The customer enters liquidation, administration, or bankruptcy.
Protracted default: The customer doesn’t pay after a defined waiting period, usually between 90 and 180 days, even though the debt isn’t in dispute.
Political risk (for export sales): Non-payment triggered by war, revolution, expropriation, embargoes, or currency restrictions.
Depending on your insurer, industry, and the jurisdictions involved, coverage can be extended to include:
Pre-shipment risk: Where production is customised or capital is front-loaded, some policies can cover the period between order confirmation and delivery.
Contract frustration: If political or regulatory changes prevent the fulfilment of a contract, despite both parties being solvent and willing.
Public buyer default: Cover for sovereign or state-owned buyers who delay or fail to pay due to bureaucratic or funding constraints.
Many policies also include credit limit approvals, where the insurer assesses and signs off on specific customers up to a certain exposure. This gives you a useful third-party view of a customer’s financial stability.
In some cases, the insurer’s refusal to approve a limit can act as an early warning sign, prompting closer scrutiny before you extend terms.
🔍 What It Doesn’t Cover
TCI doesn’t function as blanket protection and won’t respond to issues stemming from internal breakdowns, known risks, or disputes over performance.
Typical exclusions include:
Contractual disputes: If the buyer claims goods were delivered late, faulty, or in breach of contract, the insurer will pause any claim until the issue is resolved.
Administrative issues: Late invoicing, unapproved changes to payment terms, or poor record-keeping can invalidate a claim.
Pre-existing exposures: Any debt that was already overdue or known to be problematic before the policy started is outside scope.
Fraud by the insured: If the insured misrepresents facts, fails to declare material changes, or submits fictitious invoices, the policy won’t respond.
Sanctioned or undeclared risks: Transactions involving sanctioned countries, excluded industries, or buyers without a declared and approved credit limit are not covered.
Importantly, TCI isn’t retrospective. If a customer defaults and only then do you consider insurance, it’s already too late. Coverage must be in place before a problem occurs.
Compliance is also critical. Claims can be denied if you miss a reporting deadline, extend payment terms without approval, or exceed a declared credit limit. Even if the loss is genuine, failing to follow the policy’s conditions can invalidate cover.
📊 A Strategic Tool for Liquidity, Lending, and Deal Confidence
Trade Credit Insurance has evolved beyond its traditional role as a backstop for bad debt. For CFOs and corporate finance teams, it’s now part of a broader capital management strategy—one that influences lending terms, liquidity planning, and even deal valuations.
Several trends are driving this shift:
Receivables-backed lending: Banks are more likely to offer favourable terms, higher credit limits, or lower interest rates when receivables are insured. From invoice finance to asset-based lending, TCI strengthens the collateral position and gives lenders confidence in repayment.
Private equity and M&A due diligence: Buyers—particularly in leveraged transactions—scrutinise customer concentration risk and recurring revenue quality. A robust TCI program helps de-risk these exposures and may influence how future earnings are valued or adjusted in deal models.
Debt covenant compliance: In an environment where cash buffers are shrinking and interest coverage ratios are under pressure, insured receivables offer stability. They can help smooth out volatility in operating cash flow, supporting compliance with EBITDA- or working capital-linked covenants.
Cross-border growth: For businesses expanding into new geographies, particularly emerging markets, TCI offers more than peace of mind. It acts as a market enabler, giving boards the confidence to enter jurisdictions that might otherwise be ruled out due to payment risk.
In a tightening credit environment, where cost of capital and access to funding are under scrutiny, predictability is currency. And predictability is exactly what TCI delivers—not just to finance teams, but to the lenders, investors, and partners assessing the business from the outside.
🧾 Two Paths, One Lesson: How Credit Insurance Shapes Outcomes
Trade Credit Insurance doesn’t just respond to loss — it changes how the market sees you. Two recent cases, from opposite ends of the risk spectrum, show what’s at stake when credit risk is either ignored or actively managed.
🚨 Tower Trade Finance Ireland: When Assumptions Replace Assurance
In 2023, Tower Trade Finance Ireland (TTFI), a Dublin-based supply chain lender, collapsed owing €14 million. Investors were assured that exposures were diversified and protected by credit insurance. But behind the scenes, one borrower — JACC Sports Distributors — accounted for €9.5 million of the debt and wasn’t insured.
When JACC defaulted, the hole couldn’t be plugged. Up to 85% of investor funds were lost. TTFI’s failure wasn’t just a credit event; it was a governance failure. Credit insurance had been assumed, not verified. Limits weren’t managed, and the true exposure wasn’t communicated.
This wasn’t a rogue client or a black swan event. It was a known risk that was left uncovered — and a reminder that a single uninsured debtor can bring down an entire structure.
✅ Asos: Market Confidence, Rebuilt
By contrast, online retailer Asos faced its own crisis in 2023–24. Soft demand, excess inventory, and declining margins put pressure on its cashflow. Credit insurers pulled cover for its suppliers, spooking the market.
But in early 2025, after a period of strategic restructuring — including better inventory management and cost discipline — Atradius and Coface reinstated their trade credit insurance lines. This wasn’t just an operational win. It was a vote of confidence that gave suppliers reassurance and signalled to investors that Asos had stabilised.
In practical terms, it made it easier for Asos to secure better payment terms from suppliers and access working capital on improved terms. Insurers, in this case, became unwitting narrators of the company’s turnaround.
🧠 So Is It Worth It?
Trade credit insurance isn’t plug-and-play. It adds cost, demands process, and occasionally requires difficult conversations with sales teams or customers. But for businesses with material exposure to customer default risk, it can deliver protection and value far beyond the premium.
To get it right, you’ll need to:
Establish internal credit controls, including buyer limit approvals, exposure tracking, and overdue reporting
Align finance and sales teams, so growth doesn't outpace risk oversight
Monitor policy compliance, especially around payment terms, declarations, and documentation
Done well, a TCI program doesn’t just respond to bad debt. It changes how you manage risk across the revenue cycle. It can:
De-risk sales growth into new markets or higher-volume customers
Protect EBITDA during downturns by stabilising cash flow from core accounts
Unlock finance by making receivables more attractive to banks and investors
Buy time when things go wrong, giving you room to negotiate, restructure, or recover without triggering broader consequences
It’s not about removing risk. It’s about giving yourself more options when risk materialises.
🎯 Final Thought
We insure our laptops. Our trucks. Our warehouse roofs.
But for many businesses, the most exposed asset on the balance sheet — the receivables ledger — sits uninsured.
Not because it’s uninsurable. Just because it’s been overlooked.
So ask yourself:
If your five biggest customers stopped paying tomorrow, how long could you stay solvent?
Trade Credit Insurance won’t prevent that scenario. But it might just buy you enough time to survive it.
And that can make all the difference.
Disclaimer: This post is for general informational purposes only and does not constitute legal or financial advice. The views expressed are my own and do not necessarily reflect those of Adroit Insurance & Risk. Always consult qualified professionals for advice tailored to your specific situation.