Protect your business from customer payment defaults

Unpaid customer invoices can interrupt cash flow for sole traders, family businesses and small companies. How trade credit, also known as debtor insurance, may respond where credit terms are part of doing business.

Imagine you have invoiced a customer for a consignment of goods that has been delivered. The 30-day credit term has expired but payment has not been received, despite several reminder notices to the customer.

The risk of unpaid customer invoices

Late payment or customer insolvency can create significant cash-flow pressure for sole traders, family businesses and small companies, particularly where a business regularly provides goods or services on credit terms.

Many offer credit terms for customers that agree to make an initial deposit as part of the condition for paying the outstanding amount after goods or services have been provided.

In better times, one or two unpaid invoices might not affect your cash flow terribly. But the current business climate has made it riskier for SMEs like yours to offer flexible payment terms, as insolvencies or defaults tend to rise in difficult economic times.

Why businesses continue to offer credit terms

So, what can you do about it? Credit terms are vital to many SMEs, which see them as a way to secure sales. Scrapping them is probably not an option.

“No matter how well managed a business is, the risk of bad debt is always there for anyone who offers credit terms.”

If you have not already arranged trade credit insurance, now is a reasonable time to think about it.

What trade credit, or debtor insurance, may do

The cover is one option businesses use to help reduce the risk of bad debts where they rely on credit terms to secure sales.

Also known as debtor insurance, the cover is intended to help a business maintain its cash flow and continue to trade if it is struggling with unpaid customer invoices, subject to the policy wording and the circumstances of the claim.

When it may be worth considering

Trade credit insurance can often be structured around the way a business trades. It can be set up to cover your business' debtor ledger, or, if you want protection for high-value invoices, that can be arranged as well. It is worth reviewing where a business regularly extends credit to customers. An insurance broker can help you compare the options available and explain how each may respond.

Policy limits, insured percentages and conditions

In the event of a claim, the amount recoverable on a bad debt depends on the policy wording, the limit, the insured percentage and the circumstances of the claim, so not all of a debt will necessarily be recovered. Where a loss does occur, claims support from your broker can help with the process.

The thing to remember is, no matter how well managed your business is, the risk of bad debt is always there. Cover of this type is one way some businesses manage that exposure while continuing to offer credit terms in a difficult economic climate. Cash flow interruption can also arise from other events, which is where business interruption insurance is sometimes considered alongside it.

If your business regularly provides goods or services on credit terms, contact the RMA Insurance Brokers team to review whether debtor insurance may be relevant and how your current arrangements respond if a customer is unable to pay.

Source: NIBA Winter Newsletter 2026