Trade Credit Insurance
Trade credit insurance protects eligible business-to-business receivables when an approved customer does not pay because of insolvency, bankruptcy, protracted default or certain political risks. Sutherland Insurance places it for Ontario businesses from Guelph, where it has brokered insurance since 1870.
Key takeaways
- Trade credit insurance covers commercial receivables, not consumer debts. It applies where goods or services are supplied to another business on credit terms.
- Cover attaches to approved buyers up to an approved limit. An invoice to a customer the insurer has not approved, or above the approved limit, generally falls outside it.
- Depending on the policy, coverage may insure up to 90% of an eligible invoice value. The recovery is determined by the insurer, the approved buyer limit, the wording, the deductible and the claims requirements.
- The underwriting brings something beyond the claim payment: insurers assess buyers, set limits and monitor credit, which is information the seller would otherwise gather alone.
- Who it is for
- Manufacturers, wholesalers, distributors, exporters and service businesses selling to other businesses on credit terms
- What it protects
- Eligible accounts receivable from approved buyers, up to the approved credit limit
- Covered causes of loss
- Insolvency, bankruptcy, protracted default, and certain political risks on international transactions
- Indemnity
- Up to 90% of an eligible invoice under some policies, subject to insurer approval, limits and conditions
- Not covered
- Consumer sales, disputed invoices until resolved, and amounts above an approved buyer limit
- Markets
- Commercial carriers, plus specialist trade credit managing general agents
What is trade credit insurance?
Trade credit insurance is a commercial policy that responds when a business customer fails to pay an eligible invoice because of a covered event: most often insolvency, bankruptcy or protracted default, and on international sales certain political risks. It protects the receivable rather than any physical asset.
It is worth separating from the coverages it is often confused with. It is not a bond, which guarantees performance to a third party. It is not factoring, which sells the receivable outright at a discount. And it is not a general business policy: accounts receivable coverage under a commercial property form addresses records destroyed by an insured peril, which is a different problem from a solvent-looking customer who stops paying.
What can an Ontario trade credit insurance policy cover?
What a policy can cover
- Eligible commercial receivables from approved buyers where the customer becomes insolvent or enters bankruptcy
- Protracted default, where an approved buyer fails to pay within the period set out in the wording
- Certain political risks affecting international transactions, including covered government payment restrictions
- Up to 90% of an eligible invoice value under some policies, subject to the insurer's approval, the buyer limit and the policy conditions
- Buyer credit assessment, approved credit limits and ongoing monitoring provided by the insurer as part of the programme
- Collection support for overdue insured invoices, where the policy includes or coordinates it
Commonly excluded under standard Ontario trade credit insurance wordings
- Consumer sales: the policy responds to business-to-business receivables
- Loans, financing arrangements and other transactions unrelated to the supply of goods or services
- Disputed invoices, until the underlying dispute between the parties is resolved
- Known or pre-existing collection problems, and buyers already in default when the policy incepted
- Amounts exceeding the credit limit the insurer approved for that buyer
- Sales to buyers the insurer has not approved, and transactions outside the declared territory or terms
Exclusions vary by insurer and by policy form; the issued policy governs.
How much does trade credit insurance cost in Ontario?
The factors that move an Ontario trade credit insurance premium, in approximate order of influence.
| Rating factor | Why |
|---|---|
| The credit quality of the buyer portfolio | The insurer is underwriting the customers, not only the seller. |
| Customer concentration | One buyer representing a large share of receivables concentrates the whole exposure. |
| Credit terms offered | A 90-day term leaves more time for a buyer's position to deteriorate before payment falls due. |
| Insured turnover | Premium is commonly rated on the value of sales declared to the policy. |
| Domestic or export sales | Cross-border collection is slower and adds political and transfer risk. |
| Bad debt and write-off history | Past write-offs are the clearest signal of how the book behaves under stress. |
| Credit control procedures | Documented approval, monitoring and collection steps reduce the frequency of covered losses. |
| Retention and deductible selected | The seller carrying more of each loss lowers the insurer's share. |
Is trade credit insurance required in Ontario?
No Ontario statute requires a business to insure its receivables. Where a requirement appears it comes from a financing arrangement instead: a lender or factor may ask for insured receivables as a condition of a facility, or may advance against insured invoices at a higher rate than uninsured ones.
That financing use is often what makes the policy worth its cost rather than the claim payment itself. An insured receivable can be treated differently in a borrowing base, so the decision is usually taken with the lender's requirements alongside the risk of a single customer failing.
- Lender facilities that advance against a borrowing base of receivables
- Factoring and invoice finance arrangements that price insured invoices differently
- Shareholder or board requirements where customer concentration is significant
- Export finance and development agency programmes with their own insurance conditions
What situations does trade credit insurance commonly address in Ontario?
The exposure tends to become visible only when it crystallizes. A business supplying on credit carries the risk of every customer's balance sheet, and the claims that follow usually involve a buyer that looked ordinary until it did not.
- A manufacturer ships product on credit and the customer enters bankruptcy before paying the invoice
- One buyer represents a significant share of receivables and later runs into financial difficulty
- An exporter cannot collect an eligible invoice because of a covered political event or government restriction
- An approved buyer stops paying and the balance passes the protracted default period in the wording
- Late payments and write-offs increase across the book, and credit concerns begin limiting larger orders
- A lender asks for insured receivables before extending or increasing a facility
How Do I Get Business Insurance Through Sutherland Insurance?
Getting insurance through Sutherland Insurance is simple. You can request a quote online or call 519-822-0160 to speak with a licensed broker. We take the time to understand your business, identify your exposures, and find coverage options that fit your needs.
Our Process:
- Request a Quote. Complete an online quote request or call our office to speak with a licensed insurance broker.
- Tell Us About Your Business. Your broker will gather information about your operations, property, revenues, employees, vehicles, contracts, and any other areas that may require coverage.
- Review Your Risks and Coverage Needs. We assess your business exposures and insurance requirements to determine the appropriate coverage limits and options.
- Market Your Account. Sutherland Insurance compares the available commercial markets to help find the best combination of coverage, service, and price.
- Present Your Options. Your broker will review the available quotes and provide recommendations based on your specific needs and goals.
- Bind Coverage and Provide Documentation. Once you select coverage, we arrange the policy and provide any required documentation, including certificates of insurance for clients, landlords, lenders, or other third parties.
What makes Sutherland Insurance different from a direct insurer?
When a claim happens, Sutherland Insurance acts for the client with the insurer, and an in-house claims representative is available on any claim. Sutherland Insurance is an independent brokerage and compares the markets it holds contracts with rather than selling one company’s product. A person answers the phone at Sutherland Insurance, 519-822-0160, Monday to Friday, 8:30 a.m. to 5:00 p.m.
Frequently asked questions
Does trade credit insurance cover every customer?
No. Cover attaches to buyers the insurer has approved, each with a credit limit. An invoice to an unapproved buyer, or the portion of a balance above an approved limit, generally falls outside the policy. That approval process is continuous rather than annual, because a buyer's assessment can change during the term.
How much of an invoice is covered?
Depending on the policy, coverage may insure up to 90% of an eligible invoice value. The actual recovery is determined by the insurer, the approved buyer limit, the policy terms and conditions, the deductible and the claims requirements, so the percentage is a ceiling set by the wording rather than a figure that applies to every loss.
What is protracted default?
It is non-payment that continues past a period set out in the wording, without the buyer having formally failed. It matters because most unpaid invoices never involve a bankruptcy filing. The customer simply stops paying. Without a protracted default trigger, a policy would respond only to insolvency, which is the less common event.
Is a disputed invoice covered?
Not while the dispute is live. Where a buyer withholds payment because of an alleged shortfall in the goods or services, the policy generally waits until the underlying dispute is resolved. The reason is that the insurer covers a customer's inability or refusal to pay a valid debt, not the merits of a commercial disagreement.
How is trade credit insurance different from factoring?
Factoring sells the receivable to a third party at a discount, transferring ownership and usually the collection. Trade credit insurance leaves the receivable and the customer relationship with the seller, and responds only if a covered non-payment happens. Some businesses use both, because a lender may price an insured receivable differently.
Does it help with financing?
It can. Insured receivables may give lenders and financial partners additional confidence in a borrowing base, and some facilities advance against insured invoices on different terms from uninsured ones. Whether it does in a given case is a question for the lender, whose own criteria govern how the receivable is treated.
How many markets does Sutherland Insurance place trade credit across?
Sutherland Insurance places commercial business across the markets it holds contracts with, plus multiple managing general agents. Trade credit is a specialist class written by a smaller subset of those, so the practical number for any one business depends on the sales volume, the buyer profile and whether the book includes export sales.
Get your trade credit insurance quote
A licensed Sutherland Insurance broker compares the available markets on every quote request.
Get your trade credit insurance quote Call 519-822-0160
A real person answers, Monday to Friday, 8:30 a.m. to 5:00 p.m.