Trade credit insurance for Australian businesses
Selling goods or services on credit creates a risk that a customer may not pay. RMA Insurance Brokers helps businesses review trade credit and debtors insurance around customer insolvency, serious non-payment and the value tied up in accounts receivable.
Supporting businesses that rely on customers paying on time.
Overview
Trade credit insurance overview
Trade credit insurance, also known as debtors insurance, is designed to protect eligible accounts receivable when an insured customer fails to pay following an event covered by the policy.
It may be relevant to businesses trading domestically or internationally, particularly where unpaid customer accounts could create a significant impact on cash flow or working capital.
Trade credit insurance generally responds to non-payment of an otherwise valid, undisputed debt, rather than disputes about whether goods or services were properly supplied.
Who it is for
Who should consider trade credit insurance?
Trade credit insurance is relevant to businesses that supply 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 with hundreds of customers may still carry substantial credit risk where a few major customers represent a large share of sales or outstanding receivables.
When weighing that exposure, it helps to look at the largest individual debtor, the five or ten largest debtors, the share of annual sales those customers represent and the financial effect if one of them failed.
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.
Cover
What cover may be available?
Trade credit policies differ between insurers. The insured customers, credit limits, insured events and conditions shown in the policy schedule determine how the cover applies.
The areas below are commonly considered when a trade credit arrangement is reviewed, subject to the insurer and the policy wording.
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 may be structured to protect eligible amounts owed by Australian customers for goods or services supplied on agreed credit terms.
The extent of cover, insured customers 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 may include commercial customer risks and selected political risks affecting payment.
Major customers & key accounts
A business is often most exposed where a major customer represents a large share of its sales or accounts receivable.
Depending on the product, cover may be structured around selected key accounts or an individual insured buyer 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.
Structures
Trade credit insurance is structured in different ways
The structure that suits a business depends on its size, debtor profile, internal credit management and the insurer.
Comprehensive or whole-portfolio cover, designed to protect a broader credit portfolio, potentially including domestic and export customers
Excess-of-loss cover, which may suit larger businesses with established credit-management processes that accept normal levels of bad debt but want protection against exceptional losses
Key-account cover, built around selected major customers, with specific credit limits, deductibles and other conditions
Single-buyer cover, which 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
Credit limits are an important part of the cover
Trade credit insurance is not a blanket guarantee that every invoice will be paid.
Insurers commonly assess the credit risk presented by individual customers and establish insured credit limits for those covered under the policy. These limits affect the amount of receivables protected if a customer later fails to pay.
A customer appearing on the business's debtor ledger does not necessarily mean the business's full exposure to that customer is insured; cover for each customer generally depends on an insurer-approved credit limit.
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 means a trade credit insurance policy is not a set-and-forget product. The business needs to keep managing its own credit risk alongside the cover.
Debt collection
Trade credit insurance and debt collection are not the same thing
Debt collection is about recovering money that is already overdue.
Trade credit insurance addresses the financial loss where an eligible debt is ultimately not recovered. Some insurers provide both, so recovery action may take place before an insured loss is paid.
Either way, normal credit-control procedures still matter. Insurance supports good debtor management rather than replacing it.
Information
What information may be needed for a review?
When reviewing trade credit insurance, we usually look at:
annual credit sales and normal payment terms
domestic and export sales
current debtor ledger and aged receivables
major customer concentrations
previous bad debts and credit losses
current credit-control procedures and relevant customer markets
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.
Limits
What may not be covered?
Not every unpaid account or circumstance will be covered under a trade credit insurance policy. Credit limits, exclusions, conditions, excesses and reporting requirements differ between insurers, so some areas are worth checking carefully when reviewing your cover:
- 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, where relevant to export cover
- certain contractual disputes or non-performance issues
- interest or penalties
- some legal, banking or collection costs
- losses caused by movements in currency exchange rates
This is not a complete list.
The wording, schedule, insured customers, credit limits and circumstances of the non-payment determine how the policy responds.
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 more dependent on one buyer
- enters a new industry or customer segment
- begins exporting, or enters a new overseas market
- extends longer payment terms
- experiences increasing overdue accounts
- suffers a significant bad debt or becomes concerned about an important customer
Existing policyholders should also review customer credit limits and reporting requirements as exposures change.
Broker support
Trade credit insurance built around your customer exposure
Trade credit insurance starts with understanding where the business is most exposed. We look at the debtor ledger, major customers, payment terms and the financial impact a serious unpaid account could have before approaching suitable insurers.
We help clients understand the cover available, review policy structures and credit limits, and keep the insurance aligned as customer exposures change. If a serious non-payment occurs, we also help work through notifications and the claims process with the insurer.
RMA Insurance Brokers works with businesses across rural, regional and metropolitan Australia, including wholesale, manufacturing, agribusiness, transport and other business-to-business sectors. Through our relationship with rma network Livestock & Property Agents, we have connections throughout regional Australia. We also support clients outside the rma network and across other parts of Australia.
How we help
How we help businesses
review the debtor ledger and credit-sales profile
identify major customer concentrations
consider domestic and export exposures
compare available policy structures and credit limits
review reporting and notification requirements
help with non-payment notifications and claims
The insurer remains responsible for assessing customer credit risk and approving credit limits.
What happens after you enquire?
We contact you
A broker from RMA Insurance Brokers will get in touch to understand the business, how sales are made on credit, the size of the debtor ledger, major customer exposures and whether you currently hold trade credit insurance.
We confirm what is needed
We will explain what information is needed, answer your questions and confirm the next step before approaching insurers.
Useful information to have available
- current policy schedule and renewal date, if applicable
- annual credit sales and payment terms
- debtor ledger and aged receivables
- major customer concentrations
- domestic and export exposure
- previous bad debts and current credit-control procedures
FAQs
Frequently asked questions
What is trade credit insurance?
Trade credit insurance, also known as debtors insurance, is designed to protect eligible accounts receivable when an insured customer fails to pay following an event covered by the policy.
Depending on the product, insured events may include customer insolvency or protracted default.
Who should consider trade credit insurance?
Businesses that supply goods or services to other businesses on credit terms may consider trade credit insurance.
It is particularly relevant where accounts receivable represent a significant business asset, or where the failure of one major customer would materially affect cash flow.
Does trade credit insurance cover every customer?
Not necessarily. Some policies cover a broad portfolio of customers, while others are structured around selected key accounts or a single buyer.
Cover for each customer generally depends on an insurer-approved credit limit, so a customer appearing on the debtor ledger is not automatically insured for the full exposure.
Does trade credit insurance cover overseas customers?
Cover may be available for eligible overseas customers, depending on the insurer and policy.
Export arrangements may include commercial customer risks and, in some cases, selected political risks affecting payment.
Does trade credit insurance include debt collection?
Some policies include debt collection or recovery services as part of the arrangement, and recovery action may be undertaken before an insured claim is paid.
The services included depend on the insurer and policy, and normal credit-control procedures remain important.
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Review your trade credit insurance
Customer exposures change as sales grow, payment terms shift and new customers are added.
RMA Insurance Brokers helps businesses review whether their trade credit insurance still reflects the customers and receivables they rely on today.
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.