Trade credit insurance is a risk management tool that protects businesses from bad debts when selling goods and services to customers on credit terms. It is also known as accounts receivable insurance, debtor insurance, or export credit insurance. The following are key features of trade credit insurance:

• Protection: Trade credit insurance protects businesses when a customer fails to pay a trade debt due to insolvency, protracted default, political events, or acts of war that prevent contract performance.

• Indemnification: Credit insurance indemnifies a proportion (up to 95%) of the debt owed to the insured business.

• Risk rating: The insurer monitors the financial health of the insured businesss customers and applies a risk rating, which is their assessment of how likely the customers are to pay invoices on time.

• Coverage: Trade credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency, or bankruptcy.

• Cost: The cost (premium) for trade credit insurance is usually charged monthly and is calculated as a percentage of sales for that month or as a percentage of all outstanding receivables.

Trade credit insurance is commonly used by businesses that export and want to protect their cash flow. It helps businesses protect their capital, stabilize cash flow, and sometimes assist in securing finance and working capital with banks, exploring new markets with confidence, and attracting new customers with favorable credit terms.