Commercial Credit Insurance

What Does Commercial Credit Insurance Mean?

Commercial credit insurance is a type of insurance coverage designed to protect businesses from potential losses and damages resulting from unpaid invoices and the financial repercussions of bad debts.

This form of insurance is also referred to as trade credit insurance or commercial credit indemnity. A credit policy is only one piece of a company’s coverage, and most businesses buy it alongside other business insurance policies that cover everyday operational risks.

Insuranceopedia Explains Commercial Credit Insurance

Unpaid invoices can account for nearly half of a company’s assets, significantly impacting its cash flow and investment capacity. To address this issue, commercial credit insurance protects businesses against the risk of commercial debts remaining unpaid. A policy typically covers a range of clients and pays out a predetermined percentage of an unpaid invoice due to factors such as bankruptcy, insolvency, or default. Depending on the business and its client portfolio, obtaining coverage for specific or key accounts may serve as an effective risk management strategy. It’s also important to note that this coverage applies only to businesses that fail to pay, not to the non-payment of private individuals. It also doesn’t respond to customer injury claims or property damage lawsuits, which is why most companies carry general liability insurance alongside it. For a small company, commercial credit insurance can be a significant share of the total cost of small business insurance, especially when the business relies on a handful of large clients whose non-payment would put it out of business.