Your Best Client Just Filed Bankruptcy. Goodbye $100,000? Why You Need 'Trade Credit Insurance' Now

📉 The "Domino Effect" of Bankruptcy

You run a successful wholesale business. You just shipped $150,000 worth of electronics to a major retailer on "Net 60" terms. You are counting on that check to pay your own suppliers next week.

This morning, you open the news: "Retail Giant Files for Chapter 11 Bankruptcy."

Your stomach drops. As an "unsecured creditor," you are last in line. In 2026, the average recovery rate for unsecured trade creditors is often less than 10 cents on the dollar, paid years later. This single event could wipe out your annual profit or even bankrupt you. This is why smart companies buy Trade Credit Insurance (TCI).

Look at your Balance Sheet. What is your biggest asset?
It's probably not your building. It's not your inventory. It is your Accounts Receivable (AR)—the money people owe you.

You insure your building against fire (a 1 in 2,000 risk). But you leave your AR completely exposed to customer bankruptcy (a risk that is significantly higher in the volatile 2026 economy). Trade Credit Insurance fixes this gap. It guarantees that you get paid, even if your customer goes broke.

Your Best Client Just Filed Bankruptcy.

What Does It Cover?

Trade Credit Insurance (also called Accounts Receivable Insurance) covers the non-payment of commercial debt. It protects you against two main triggers.

• 1. Insolvency (Bankruptcy)
  Your customer legally files for Chapter 7 or Chapter 11 bankruptcy protection. The insurance pays you the invoice amount immediately (typically 90-100%).
• 2. Protracted Default (Slow Pay)
  The customer hasn't filed bankruptcy, but they just... aren't paying. Maybe they are ghosting you. After a waiting period (e.g., 90 days past due), the insurance steps in and pays you. They then take over the collection process (Subrogation).

Unlocking Bank Loans

This is the secret reason most CFOs buy this insurance. It's not just for protection; it's for Growth.

Banks hate risk. If you ask for a loan using your Accounts Receivable as collateral, the bank might say:
"We will only lend you 50% of your AR value because we are scared your customers won't pay."

But if you have TCI
You can show the bank the insurance policy and add them as a "Loss Payee" (Assign the proceeds to them). The bank now knows the money is guaranteed by a massive insurer (like Allianz or Euler Hermes). Suddenly, the bank says:
"Okay, we will lend you 90% of your AR value."

💰 Working Capital Hack

By spending a small amount on insurance, you instantly unlock hundreds of thousands of dollars in extra borrowing power (Working Capital) to expand your business.

The "Export" Superpower

Selling to customers in the US is hard enough. Selling to a customer in Brazil or Vietnam? That is terrifying. If a foreign customer refuses to pay, good luck suing them in their local court system.

Trade Credit Insurance solves this. The big insurers have databases on millions of companies worldwide.
1. They verify the creditworthiness of your foreign buyer before you ship.
2. They cover the "Political Risk" (e.g., war, currency transfer blockage).
3. They pay you in US Dollars if the deal goes south.

⚠️ Compliance Alert (OFAC & Sanctions): Insurance does NOT cover illegal trade. Before shipping, you must screen your customers against the US Treasury's OFAC list and other "Denied Parties" lists. If you ship to a sanctioned entity or country, your insurance policy is void, and you may face federal prison time.

How Much Does It Cost?

It is surprisingly affordable compared to the risk.

Your Annual Sales	Typical Premium Rate	Annual Cost
$5 Million	0.15% - 0.25%	$7,500 - $12,500
$20 Million	0.10% - 0.20%	$20,000 - $40,000
$100 Million	0.05% - 0.15%	$50,000 - $150,000

*Think about it: For the price of one entry-level employee, you insure your entire revenue stream.

Is It Right for You? (The Checklist)

• ❌ NO if
  You sell directly to consumers (B2C) via credit card. (You have chargeback risk, not credit risk).
• ❌ NO if
  You only sell to the Government. (Uncle Sam prints money; he won't go bankrupt).
• ✅ YES if
  You have "Concentration Risk" (e.g., one customer makes up 20% of your sales). If that one customer fails, you fail. TCI is mandatory here.

🛡️ Chief Editor’s Verdict

Don't be the bank for your customers without protection.

1. Analyze Your AR: Look at your "Aging Report." Who owes you the most? What if they disappeared tomorrow?
2. Get a Quote: Ask a specialized broker (not your general agent) for a "TCI Quote." You can insure your whole portfolio or just specific risky clients ("Key Account Cover").
3. Sleep Better: Once insured, you can aggressively sell to new clients without fear of non-payment.

Revenue is vanity. Profit is sanity. Cash is king. Protect the king.

[Legal Disclaimer]
This article provides general information regarding Trade Credit Insurance and is not financial or legal advice. Insurance policies are subject to specific terms, conditions, and exclusions (such as fraud or disputed debt). Lending against insured receivables requires a formal Bank Assignment agreement acknowledged by the insurer. International trade is subject to OFAC and other export control laws. Always consult with a licensed specialist broker to structure a policy that meets your specific needs.