Trade credit insurance: protecting your cash flow when clients don't pay

Getting stiffed by a client is one of the worst things that can happen to a trade business. You've done the work, ordered the materials, paid your subbies — and then the client goes quiet, disputes the invoice, or worse, goes into administration. Without any protection in place, that money is gone.

Trade credit insurance is designed to cover exactly this situation. It pays out when a customer fails to pay an invoice due to insolvency, protracted default, or in some cases political risk. For sole traders and small contractors who carry significant credit exposure, it can be the difference between a difficult month and a business-ending one.

This guide explains how trade credit insurance works in the UK, what it typically covers, how much it costs, and how to decide whether it's right for your trade business.

What is trade credit insurance?

Trade credit insurance is a policy that protects your business against the risk of non-payment from customers. If a client fails to pay because they've become insolvent or have simply stopped paying (known as protracted default), the insurer pays you a percentage of the outstanding invoice value — typically 75% to 95%.

It's most commonly used by businesses that sell goods or services on credit terms, i.e., sending an invoice and waiting 30, 60, or 90 days to be paid. That's most trade businesses in the UK.

According to the Insolvency Service, company insolvencies in England and Wales have been running at historically elevated levels since 2022. In 2024 alone, over 25,000 companies entered insolvency — many of them small construction and property businesses. If any of those companies owed your business money, you'd be left as an unsecured creditor with little chance of full recovery.

What does it cover?

Most trade credit insurance policies cover two main scenarios:

Customer insolvency

If your client goes into administration, liquidation, or receivership before paying your invoice, the insurer pays out. This is the most common claim type. The policy triggers once insolvency is formally declared.

Protracted default

This covers situations where a client simply stops paying without going insolvent. Typically the policy kicks in after a waiting period — often 90 to 180 days beyond the due date. This is useful for chasing clients who dispute invoices or ghost you after the job is done.

What is usually excluded

• Disputes about the quality of work — if the client has a legitimate complaint, the insurer won't pay out
• Debts already overdue when the policy started
• Clients you've already had payment problems with
• Public sector clients (government departments rarely go insolvent)
• Connected companies (you can't insure debts from your own subsidiaries)

Most policies also require you to follow a credit management process — checking clients' credit before extending terms, reporting overdue debts promptly, and not agreeing informal payment extensions without telling the insurer.

How much does trade credit insurance cost?

Premiums are calculated as a percentage of your insured turnover — typically between 0.1% and 0.5% per year. So if you insure £500,000 of annual invoiced revenue, you might pay between £500 and £2,500 a year.

The exact rate depends on the industries your clients work in (construction carries higher risk than many sectors), your claims history, the credit quality of your largest debtors, and the policy structure. Some policies have a minimum premium regardless of turnover — often £2,000 to £3,000 a year — which makes them less viable for very small businesses.

If you're managing a large project with a single client and want protection for that specific job, ask about single-buyer policies or top-up cover. These can be taken out for a specific debtor without insuring your whole ledger.

Is it worth it for tradespeople?

The honest answer depends on your business model. It probably makes sense if you work mostly for developers, building contractors, or other commercial clients who could go bust; if you regularly carry large unpaid invoices — say, £50,000 or more at any one time; or if a single bad debt could seriously damage your cash flow.

It's probably not worth it if you work mostly for homeowners who pay on completion or in stages, your average invoice value is under £5,000, or the premium minimum is higher than any realistic claim you'd make.

Use the late payment calculator to see the statutory interest you're entitled to claim on overdue invoices.

How to get trade credit insurance in the UK

The main providers are Atradius, Euler Hermes (Allianz Trade), Coface, and QBE. You can go direct or use a specialist broker. Brokers who focus on trade credit insurance will often get you better terms and can help you understand what's actually covered.

When you apply, the insurer will want to see your debtor ledger, your turnover history, and in some cases financial statements. They'll then set credit limits for each customer — this is the maximum they'll insure per client.

Alternatives to trade credit insurance

Stage payments

Structuring your contracts so you're never owed more than one stage's worth of work limits your downside. Many subcontractors on larger projects negotiate to reduce or release retention early.

Personal guarantees

For work with limited companies, you can ask directors to provide personal guarantees. This means that if the company can't pay, you can pursue the director personally.

Invoice finance

Invoice finance companies will advance you a percentage of your outstanding invoices immediately — typically 70 to 90% — and then collect payment from your clients. Some products include bad debt protection as part of the package.

The Construction Act and your right to payment

The Housing Grants, Construction and Regeneration Act 1996 gives contractors and subcontractors strong rights around payment in construction contracts, including the right to payment notices, the right to suspend work for non-payment, and adjudication rights that are faster and cheaper than going to court.

Frequently asked questions

Does trade credit insurance cover all my clients automatically?

Usually not. Most whole-turnover policies give each client a credit limit. You need to check limits before extending credit, not after.

Can I get trade credit insurance as a sole trader?

Yes, but many providers have minimum premium thresholds that make it uneconomical unless your turnover is above around £300,000 to £500,000 a year.

What happens if I don't report an overdue debt in time?

You may lose the right to claim. Most policies require debts to be reported within 30 to 60 days of becoming overdue. Missing this window is one of the most common reasons claims are rejected.

Does it cover disputes where the client says the job wasn't done properly?

No. Trade credit insurance only covers financial failure to pay, not disputed debts. You'd need to resolve the dispute first before any insurance protection applies.

Is the premium tax-deductible?

Yes. Insurance premiums paid wholly and exclusively for business purposes are an allowable expense. They are exempt from VAT, so there's no VAT to reclaim on them.