Credit Insurance — definition
Insurance policy that protects a seller or lender against the risk of non-payment by a buyer, commonly used to support export sales and trade financing of industrial equipment.
Credit insurance can cover commercial risks, such as buyer insolvency, and in some policies political risks affecting cross-border payment. It is commonly used by exporters and lenders to manage concentration risk and can improve access to trade financing by reducing lender exposure.
Why it matters to industrial buyers
Credit insurance can make suppliers more willing to extend payment terms and can improve financing availability for buyers by reducing the risk lenders bear on a transaction.
Key reference points
Coverage scope
Policies commonly cover a defined percentage of the insured receivable, often in the range of 80-95 percent, rather than the full amount.
Commonly confused with
Letter of credit
Credit insurance protects against non-payment risk across a receivable or portfolio; a letter of credit is a specific bank payment guarantee tied to one transaction's documentation.
How it is used in practice
An equipment exporter takes out credit insurance to protect against non-payment risk on a large overseas order.
Frequently asked questions
Who typically buys credit insurance?
Exporters, suppliers extending payment terms and sometimes lenders financing receivables commonly purchase credit insurance.
Does credit insurance cover political risk?
Some policies extend to political risks such as currency inconvertibility or trade restrictions, though this varies by insurer and policy.
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Related terms
Letter of Credit (LC)
Payment instrument issued by a bank on behalf of a buyer, guaranteeing payment to a seller upon presentation of specified documents that confirm contractual obligations have been met.
Export Credit Agency (ECA)
Government-backed or government-supported institution that provides financing, guarantees or insurance to support the export of a country's goods and services, including industrial equipment.
Working Capital Facility
Short-term financing arrangement, often revolving, that provides a company with funds to cover day-to-day operating expenses such as inventory, payroll and receivables.
Bankability
Degree to which a project's contracts, cash flows, risk allocation and documentation are sufficiently robust to attract debt financing from commercial lenders.
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Reference content only. Global B2B Group is independent of equipment manufacturers and financing institutions; definitions are provided for education and do not constitute engineering, financial or legal advice.