What trade credit insurance is
Trade credit insurance protects your company against non-payment and insolvency of your customers on business-to-business credit sales. When you invoice on deferred payment terms, collection stops being a certainty: a customer that enters insolvency or simply stops settling its invoices can turn an expected margin into a direct loss.
This cover transfers that non-payment risk to a specialist insurer. In exchange for a premium, the insurer assesses your buyers' creditworthiness, sets a risk limit for each of them, handles the recovery of bad debts and indemnifies the loss up to the percentage agreed in the policy. It is a credit-risk management tool, not merely an indemnity product.
According to CESCE, trade credit insurance covers non-payment risks arising from sales of goods and services in both domestic and foreign markets. The precise cover, waiting periods and amounts depend on the terms of each policy and insurer.
New Brokers is an independent insurance broker, registered with the DGSFP under reference J0140. This article is for general guidance and does not constitute binding advice.
Trade credit insurance and surety insurance are not the same
The two products are often confused because they are frequently sold together, but they cover different risks and should not be conflated.
- Trade credit insurance: protects the seller against non-payment by its own customers. The insured is the policyholder itself, seeking to safeguard its receivables. The insured risk is the debtor's insolvency.
- Surety insurance (seguro de caución): the insurer issues a guarantee or bond in favour of a third party (a public authority, a client, a developer) to answer for the policyholder's failure to meet its obligations. Here the insured is the counterparty to the contract, not the party taking out cover.
Put another way: trade credit protects you when you are not paid; surety answers to third parties when you fail to perform a contractual obligation. If you are looking for information on bonds and guarantees, that is a separate line; this article deals solely with the risk of non-payment by your customers.
Would you rather review it with a broker? We analyse your customer portfolio and your exposure to non-payment with no obligation. Request a review.
What does trade credit insurance cover?
Cover varies by insurer and contract, but a trade credit programme is usually built around these elements:
| Element | What it involves |
|---|---|
| Creditworthiness assessment | The insurer assesses and classifies each buyer's risk and sets a credit limit. |
| Insolvency cover | Indemnifies the loss from the debtor's legal insolvency (formal proceedings). |
| Protracted default cover | Covers prolonged non-payment (de facto insolvency) once the policy's waiting period has elapsed. |
| Debt recovery | The insurer pursues the unpaid debt before indemnifying. |
| Indemnity | Pays a percentage of the bad debt, as agreed in the policy. |
Two points matter from a YMYL standpoint. First, trade credit insurance does not usually indemnify one hundred per cent: a cover percentage is applied to the unpaid debt, as set in the contract. Second, the policy sets out exclusions and conditions —transactions over the limit, unclassified debtors, waiting periods— that should be reviewed carefully before signing.
It is precisely this close reading of terms, limits and exclusions where an independent broker adds value: it does not sell a policy, it compares the market and defends your interest.
How it works: from debtor classification to indemnity
Trade credit insurance works as a continuous cycle, not as a policy filed away in a drawer:
- Buyer classification. The insurer studies your customers and assigns each a risk limit, which it may revise up or down as their financial position evolves.
- Covered sales. As long as you sell within the classified limits, your invoices are insured in accordance with the policy terms.
- Notice of non-payment. If a customer stops paying, you report the default to the insurer within the set period.
- Debt recovery. The insurer activates recovery of the debt, using its own resources or those of its network.
- Indemnity. If recovery fails and the debt is confirmed as bad, the insurer pays the agreed cover percentage.
This arrangement brings a benefit beyond the indemnity itself: up-to-date information on the solvency of your portfolio. Knowing which customers carry the most credit and which warrant closer monitoring is, in itself, a commercial and financial decision-making tool.
Your finance director will value the insight. We help you build trade credit cover into your commercial risk policy. Talk to our team.
Domestic and export sales
Non-payment risk is not confined to the domestic market. When you sell outside Spain, further variables come into play: distance, the difficulty of enforcing a claim in another jurisdiction and, in some markets, political risk.
There are trade credit options for domestic and export sales. On the export side, alongside commercial risk (insolvency of the private buyer), political or extraordinary risk in certain countries may also apply. In Spain, export credit cover on behalf of the State is managed exclusively by CESCE, while ordinary commercial risk is also underwritten by private insurers in the market.
Deciding which part of your exposure to insure, in which markets and with which insurer is a decision that depends on your sector, your buyers and the terms of each policy. There is no single answer.
Why manage trade credit insurance with an independent broker
Trade credit insurance is a technical product whose terms vary considerably between insurers: per-debtor limits, cover percentages, waiting periods, treatment of exports. Comparing and negotiating those terms calls for market access and judgement.
As an independent broker, New Brokers works under the client's mandate, not on behalf of an insurer. That means we compare the market —including credit specialists and the London market where the risk calls for it—, analyse your buyer portfolio and design a programme tailored to your real exposure.
Above all, we stand with you at the decisive moment: defence at the claim stage. When a default occurs, it is the broker who negotiates the classification, the claim and the indemnity amount with the insurer, with the client's interest as its sole mandate.
You can explore our other areas of cover for large accounts or learn how an independent broker works.
We analyse your non-payment exposure with no obligation. We review your customer portfolio and propose a tailored programme. Request a review of your credit risk.
Frequently asked questions
How does trade credit insurance differ from surety (caución) insurance? Trade credit insurance protects the seller against non-payment or insolvency of its customers on credit sales. Surety insurance is different: the insurer issues a guarantee or bond in favour of a third party to answer for the policyholder's failure to meet its obligations. In trade credit the insured risk is the customer's non-payment; in surety, the guarantee towards third parties. The precise scope depends on the terms of each policy and insurer.
What counts as non-payment or insolvency under the policy? A distinction is usually drawn between legal insolvency (for example, a formal insolvency or bankruptcy declaration against the debtor) and de facto insolvency or protracted default, where the debt remains unpaid for a set period defined in the policy. The waiting periods, the definition of a bad debt and the indemnifiable percentage are set out in each contract's terms.
Does trade credit insurance cover export sales? Yes. There are cover options for both domestic and export sales, which may include commercial risk and, where applicable, political or extraordinary risk in certain markets. In Spain, export credit cover on behalf of the State is managed exclusively by CESCE. The exact fit depends on the country, the buyer and the terms of each policy.
What percentage of the unpaid debt is indemnified? Trade credit insurance does not usually indemnify one hundred per cent: a cover percentage is applied to the unpaid debt, as set in the policy. That percentage, the per-debtor limits and any deductibles vary by insurer, sector and risk profile. These terms should be reviewed before taking out cover.