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Protect Yourself From Bad Debt With Trade Credit Insurance

  • Adroit Insurance and Risk
  • March 17, 2016

Bad debts are an ever-present threat to many businesses, particularly in these economically difficult times. Yet far too many businesses ignore the perils of debt, while they’re happy to insure against hazards such as fire and flood. In fact, it is much more likely that a debtor will go broke than for your building to burn down.

If your business sells goods or services on credit terms, then Trade Credit Insurance is an absolute must.

In fact, recent data shows that credit insurance claims are at their highest levels since the peak of the GFC in 2009. Major insolvencies across the country, including Dick Smith, My Baby Warehouse and Allied Traffic Services show that the risk is real – even for your business.


What is Bad Debt?

When a customer is unable to pay a business the amount that they owe, this is recorded in the business’ books as a bad debt expense. In accounting terms, this usually refers to accounts receivable amounts that will not be collected. Bad debt doesn’t always mean it will never be collected. In some cases, such bad debt is paid at a much later date. Nonetheless, bad debts are a common occurrence that many businesses deal with at some point. 


How to Avoid Bad Debt For Your Business

Bad debt can be caused by many situations, many of which can be very unexpected. Bad debt in businesses can occur in situations where: 

  • The debtor has gone bankrupt, in liquidation, and is not able to recover for the amount they owe
  • Contact or communication is lost with the debtor
  • The debtor has passed and didn’t have any assets left behind

Fortunately, your business can fall back on a financial safety net through taking out trade credit insurance.

Speak to the leading expert insurance risk advisers at Adroit today – we equip your business so you can take on tomorrow, with confidence. 


What is Trade Credit Insurance?

To avoid the losses of bad debt, trade credit insurance coverage provides a financial safety net to help keep your business going even when your debtors are unable to pay the amount they owe you. 


Benefits of Trade Credit Insurance

Trade credit insurance is used to pay out a percentage of outstanding debt to businesses, ensuring they’re not left with a severe loss in the long term. Trade credit insurance allows businesses to have more confidence in expanding their customer base and keep growing their business despite risks of bad debts.


How to Insure a Bad Debt

You can insure against bad debts by taking out the appropriate trade credit insurance cover, but the amount of cover will vary according to each provider. Also, there will be certain exclusions to your trade credit insurance policy that you’ll need to be aware of.

That’s why at Adroit, we’re here to help you find a trade credit insurance policy that is right for you. By comparing the range of possible options available, we narrow down which provide the level of protection that your business needs.

Your Adroit risk advisers eliminate the hassle, time, and stress involved during the claims process and provide you with the proper protection you need to keep your business going – even during the most difficult of times. 


Why Your Business Needs Trade Credit Insurance

Although economic growth is expected to decelerate and unemployment has risen, Trade Credit Insurance gives a business the confidence to continue trading and even build new opportunities, particularly in challenged sectors.

Protecting your business from losses due to customer insolvency, default or political risk, Trade Credit Insurance typically covers up to 90% of a contract’s value, with the insurer paying out if the customer can’t. The insurer will then pursue the customer for payment. Trade Credit Insurance can be the difference between sinking and swimming, and without it you could be exposing your business to enormous risk.


SMEs and Exposure to Debtors

However many firms, particularly SMEs, are still not aware of the need to think deeply about their exposure to debtors. Cashflow is the lifeblood of small firms, and failure to receive vital funds can spell the beginning of the end. Trade Credit Insurance is an important part of a comprehensive risk management strategy, helping avoid bad situations before they are allowed to develop. It can make it easier for your business to grow, allowing you to offer customers more competitive credit terms and increase borrowing power.


Gain a Competitive Advantage With Trade Credit Cover

Banks will look more favourably on the funding requests of insured companies, which can often negotiate better finance terms. Trade credit cover gives you a competitive advantage, while others operate with uncertainty – and by providing certainty, it provides a valuable service to the wider economy, helping prevent a bad debt domino effect.



Policies can be tailored to specific needs and are available for businesses of all sizes. Talk to us about arranging suitable cover, and give your business a better chance of surviving the challenges that lie ahead.

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