Trade credit insurance for Australian businesses
Selling goods or services on credit creates a risk that a customer will not pay. RMA Insurance Brokers helps businesses review trade credit and debtors insurance to protect accounts receivable against selected customer insolvency and non-payment risks.
Trade credit insurance at a glance
Trade credit insurance, also known as debtors insurance, is designed to protect a business against certain losses when customers fail to pay amounts owed for goods or services supplied on credit.
It can be relevant to businesses trading domestically or internationally and may respond to insured non-payment events such as customer insolvency or protracted default, subject to the policy.
Key areas
- Customer insolvency
- Protracted default
- Accounts receivable
- Domestic customers
- Export customers
- Credit risk management
Who should consider trade credit insurance?
Trade credit insurance can be relevant to businesses that provide goods or services to other businesses on payment terms rather than requiring payment upfront.
- Wholesalers and distributors
- Manufacturers and processors
- Agribusinesses and agricultural suppliers
- Exporters
- Transport and logistics businesses
- Other businesses with material accounts receivable
The size of the debtor ledger is not the only consideration. A business may have a relatively small number of customers but still have significant exposure if one or two major buyers represent a large proportion of outstanding receivables.
A review can be worthwhile where a business:
- offers 30, 60 or other credit terms
- relies heavily on a small number of major customers
- is expanding sales to new customers
- trades in industries experiencing financial pressure
- is entering new domestic or export markets
- could experience material cash-flow pressure following a significant bad debt
What can trade credit insurance cover?
Customer insolvency
Trade credit insurance may respond when an insured customer becomes insolvent and is unable to pay eligible amounts owed to the business.
Protracted default
A customer does not necessarily need to enter formal insolvency proceedings before a serious payment problem arises.
Depending on the policy, cover may respond where an insured customer fails to pay an eligible debt within the period specified by the policy.
Domestic trade receivables
Policies can be structured to protect eligible amounts owed by Australian customers for goods or services supplied on agreed credit terms.
The extent of cover, insured buyers and applicable credit limits depend on the policy.
Export trade receivables
Trade credit insurance may also be available for eligible overseas customers.
Depending on the insurer and policy, export arrangements can include commercial buyer risks and selected political risks affecting payment.
Major customers & key accounts
A business may be particularly exposed where a major customer represents a large share of its sales or accounts receivable.
Depending on the product, cover can sometimes be structured around selected key accounts or individual buyers rather than the entire debtor ledger.
Debt recovery support
Some trade credit policies include access to debt collection services where an insured customer fails to pay.
The services available depend on the insurer and policy.
Trade credit insurance can be structured in different ways
Trade credit insurance can be structured in different ways depending on the business, debtor profile and insurer.
Comprehensive or whole-portfolio cover
Designed to protect a broader credit portfolio, potentially including domestic and export customers.
Excess-of-loss cover
May suit larger businesses with established internal credit-management processes that are prepared to retain normal levels of bad debt but want protection against exceptional losses.
Key-account cover
Designed around selected major customers whose failure to pay could materially affect the business. Policy structures can include specific credit limits, deductibles and other conditions.
Single-buyer cover
Cover may be available in some circumstances for exposure to one particular buyer.
Not every insurer offers every structure, and eligibility, minimum turnover requirements, premiums and terms vary.
Credit limits are an important part of the cover
Trade credit insurance is not simply a blanket guarantee that every invoice will be paid.
Insurers commonly assess the credit risk presented by individual buyers and establish insured credit limits for customers covered under the policy. These limits can affect the amount of receivables protected if a customer subsequently fails to pay.
Even where an insured debt falls within an approved credit limit, the policy may indemnify only a stated percentage of the insured loss, with the business retaining the balance.
Depending on the policy, a business may need to:
- request credit limits for customers
- monitor changes to insurer-approved limits
- advise the insurer of material overdue accounts
- comply with agreed credit terms
- submit turnover or invoice declarations where required
- obtain approval before materially increasing exposure to a buyer
This makes trade credit insurance part insurance protection and part ongoing credit-risk management.
Trade credit insurance and debt collection are not the same thing
Debt collection seeks to recover money that is already overdue.
Trade credit insurance addresses the financial risk that an insured debt may ultimately not be recovered. Some trade credit insurers provide both services, meaning debt recovery may occur before an insured loss is ultimately paid.
Businesses should still maintain appropriate credit-control procedures rather than assume insurance replaces normal debtor management.
What information may be needed for a trade credit insurance review?
When reviewing trade credit insurance, we may need information about:
- annual credit sales
- domestic and export sales
- current debtor ledger
- major customer concentrations
- normal payment terms
- aged receivables
- previous bad debts and credit losses
- existing credit-control procedures
- countries and industries in which customers operate
Depending on the proposed structure, insurers may also require financial information about the business or details of particular customers for which credit limits are sought.
When should trade credit insurance be reviewed?
A review is particularly worthwhile when a business:
- materially increases sales on credit
- gains a major new customer
- becomes increasingly dependent on one buyer
- enters a new industry or customer segment
- starts exporting
- enters a new overseas market
- extends longer payment terms
- experiences increasing overdue accounts
- suffers a significant bad debt
- becomes concerned about the financial position of an important customer
Existing policyholders should also review buyer credit limits and reporting requirements as customer exposures change.
What may not be covered?
Trade credit insurance is subject to policy conditions, credit limits, excesses, waiting periods and exclusions. Depending on the policy, cover may not respond to:
- debts outside an approved credit limit
- transactions or customers outside the insured scope
- failure to comply with required policy conditions
- invoices not issued or reported within required timeframes
- failure to obtain required import or export licences
- certain contractual disputes or non-performance issues
- interest or penalties
- some legal, banking or collection costs
- currency exchange losses
This is not a complete list.
The wording, schedule, insured buyers, credit limits and circumstances of the non-payment determine how the policy responds.
Example: a major customer fails to pay
Illustrative example
A regional food producer supplies a significant order to a new wholesale customer on agreed credit terms. The invoice becomes due, but payment is not received.
The business follows its normal credit-control process and advises the trade credit insurer in accordance with the policy requirements. Despite recovery efforts, the customer is unable to pay the insured debt.
A trade credit insurance claim is lodged. Depending on the policy, approved buyer limit, excess and circumstances, the insurer may indemnify the business for the insured proportion of the eligible loss. The payment can help reduce the cash-flow impact created by the unpaid account.
Example provided for general illustration only. Cover depends on the insurer, policy wording, approved credit limit, excess, exclusions and circumstances of the loss.
One customer can create a significant concentration risk
A business with hundreds of customers can still carry substantial credit risk if a large proportion of revenue is concentrated among only a few buyers.
When reviewing trade credit exposure, it can be useful to consider:
- the largest individual debtor
- the five or ten largest debtors
- the percentage of annual sales represented by major customers
- the financial effect if one major customer failed
- whether credit limits reflect current sales volumes
Our Insight Protect your business from customer payment defaults explains why debtor concentration and customer failure can have broader consequences for cash flow and business operations.
Trade credit insurance across Australia
RMA Insurance Brokers assists businesses selling goods and services on credit throughout rural, regional and metropolitan Australia.
For regional businesses, debtor exposure can arise across industries including agriculture, wholesale distribution, manufacturing, transport, professional services and other business-to-business trade.
We also work closely with rma network Livestock & Property Agents, providing connections with businesses throughout regional Australia.
Our services are not limited to rma network Members. Businesses across Australia can contact RMA Insurance Brokers for assistance reviewing trade credit and debtors insurance.
Why RMA Insurance Brokers?
Trade credit insurance needs to reflect both the overall debtor ledger and the financial impact individual customers could have on the business.
RMA Insurance Brokers can help you:
- review the debtor and credit-sales profile
- identify major customer concentrations
- consider domestic and export exposures
- review available policy structures
- compare credit limits, excesses and insured percentages
- review policy reporting and notification requirements
- assist with non-payment notifications and claims
The insurer remains responsible for assessing buyer credit risk, approving credit limits and determining claim entitlement under the policy.
Frequently asked questions
What is trade credit insurance?
Trade credit insurance, also known as debtors insurance, is designed to protect eligible accounts receivable where an insured customer fails to pay because of an event covered by the policy. Depending on the product, insured events can include customer insolvency or protracted default.
Who should consider trade credit insurance?
Businesses supplying goods or services to other businesses on credit terms may consider trade credit insurance. It can be particularly relevant where accounts receivable represent a significant business asset or where failure of one major customer could materially affect cash flow.
Does trade credit insurance cover every customer?
Not necessarily. Policies can differ significantly. Some cover a broad portfolio of customers, while others can be structured around particular key accounts or selected buyers. Individual customers may also be subject to insured credit limits.
Does trade credit insurance cover overseas customers?
It can. Trade credit cover is available for domestic and export customers, depending on the insurer and policy. Export policies may also provide selected political-risk protection.
Does trade credit insurance include debt collection?
Some policies provide debt-collection support as part of the trade credit arrangement. Where available, recovery action may be undertaken before an insured claim is paid. The services included depend on the insurer and policy.
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Protect your business against customer non-payment
A customer failure can affect more than one invoice. It can reduce cash flow, working capital and the ability to meet other business commitments.
RMA Insurance Brokers can help you review whether trade credit insurance is appropriate for your debtor profile and the customers on which your business relies.
The information on this page is general information only and does not take into account your objectives, financial situation or needs. Cover is subject to the terms, conditions, limits and exclusions of the relevant policy. Insurance products and available cover vary between insurers. Please review the relevant policy documentation and obtain advice appropriate to your circumstances before making a decision.