Bankruptcy filings in the US have been trending upward in 2025, with a significant increase compared to previous years. Global trade faces significant challenges, including rising protectionism, supply chain disruption, and geopolitical instability. This adds increasing margin pressure to trading companies and their cash flow generation. The risk of payment default is a significant concern for companies trading on open account terms. Business customers’ (“buyers”) payment defaults can be catastrophic for small and medium-sized businesses. However, there are ways to mitigate this risk for businesses.

One of the mitigation products is trade credit insurance. Trade credit insurance protects businesses from non-payment of commercial debt. It covers business-to-business (B2B) accounts receivable risk exposure. If companies do not receive what they are owed due to a buyer’s bankruptcy, cash flow issue, or political risk under export sales, a trade credit insurance policy will reimburse the insured for a majority of the outstanding debt. Coverage includes commercial risk, such as Protracted Default and Insolvency, and political risk for export businesses, such as currency inconvertibility, embargoes, war, license cancellation, and public buyer defaults.

The cost of the trade credit insurance policy will vary depending on the industry, the annual revenue that needs to be insured, the company’s history of bad debts, its current internal credit procedures, and its customers’ creditworthiness, among other factors. If a company sells to clients in a mix of industries and countries, the trade credit insurance rates will reflect the risk determined to be associated with all of these pieces of information.

A trade credit insurance policy can typically offset its own cost many times over, even if the insured never makes a claim, by increasing the sales and profits without taking on additional risk. It’s important that a company works with an insurance broker who has expertise in trade credit insurance to assess the risk profile of the business and understands its unique insurance and risk management needs.

With trade credit insurance, a company can more reliably manage the commercial and political risks of trade that are beyond its control. Trade credit insurance can help the business feel secure in extending more credit to current customers or pursuing new, larger customers that would have otherwise seemed too risky.

Credit insurance will provide the following benefits:

■ Expand sales with confidence, whether selling more to existing customers or pursuing new customers.

■ Reduce bad-debt reserves, freeing up capital.

■ Protect against non-payment and catastrophic loss.

■ Access better financing terms, as banks will typically lend more capital against insured receivables.

■ Make the best possible business decisions by accessing the trade credit insurer’s information risk data quickly.

■ Expand into new international markets, backed by protection from unique export risks and the market knowledge to make accurate growth decisions.

About the Author: Victoria Ma serves as area senior vice president at Gallagher, one of the world’s largest insurance brokerage, risk management and consulting firms. For more information, please contact victoria_ma@ajg.com/visit ajg.com