Accounts Payable & Receivable › Collections & Bad Debts
What is credit insurance and how does it protect receivables?
IntermediateAnswer
Trade credit insurance covers losses if insured customers fail to pay due to insolvency or protracted default. The insurer sets credit limits per customer; covered losses are reimbursed (less a deductible/coinsurance). It protects cash flow, supports safer expansion of credit, and can improve financing terms, at the cost of premiums.
Real-world example A credit-insured exporter recovers 90% of a defaulted overseas customer's balance from its insurer instead of writing it all off.