What the policy does
A trade credit policy covers non payment by your customers, subject to agreed limits for each buyer and a stated cover percentage, commonly around ninety per cent of the invoice value. Cover is credit assessed buyer by buyer, so it is not automatic across your whole ledger.
For most businesses the policy is bought for balance sheet protection. The funding benefit is a second order effect that is frequently overlooked when comparing the premium against the value received.
Why lenders pay more against insured debt
A receivables funder's exposure is to your customers as much as to you. Where a policy covers the buyer, the funder's loss given default falls sharply, which lets them lift the advance rate, relax concentration caps and include buyers they would otherwise exclude.
Export receivables are the clearest example. Many funders will not advance against overseas debtors at all without cover, so a policy can turn an unfundable ledger into a fundable one.
Weighing the cost
Premiums are usually quoted as a small percentage of insured turnover. Judge that cost against three things together: the bad debt you would otherwise absorb, the additional working capital released by higher advance rates, and the margin saved if the improved risk position lowers your funding cost.
Where the policy unlocks materially more availability, the premium often pays for itself before any claim is made.
Practical points
The policy needs to be assignable to the funder, and the funder will usually want to be noted as loss payee. Arrange the two together rather than sequentially, since retro fitting an existing policy can be awkward.
Keep within the credit limits the insurer sets. Trading above an approved limit leaves the excess uninsured and therefore usually unfunded as well.
Frequently asked questions
Can I insure only some customers?
Yes. Selective or top account policies exist, though whole turnover cover is generally cheaper per unit of exposure.
Does the funder arrange the cover?
Some receivables funders offer bundled cover, others require you to hold your own policy and assign it.
What happens if the insurer withdraws a limit?
Availability against that buyer usually falls immediately, which is why limit monitoring should sit with a named person internally.
Last reviewed: 2026-09-06