What is Invoice Insurance?
Invoice insurance, also known as trade credit insurance or accounts receivable insurance, is a policy that protects your business against the risk of non-payment from customers. If a customer fails to pay an insured invoice due to insolvency, protracted default, or other covered reasons, the insurance policy compensates you for a significant portion of the invoice value, typically up to 90%.
This type of insurance is particularly useful for businesses that offer credit terms to customers, as it provides a safety net against potential bad debts.
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1. Select a policy
Choose an invoice insurance policy that fits your business needs. You can insure individual invoices, selected customers, or your entire accounts receivable ledger.
2. Customer credit assessment
The insurer evaluates the creditworthiness of your customers to set coverage limits and define which accounts are insurable.
3. Policy activation
Once approved, your insurance coverage becomes active - ready to protect future invoices issued under the agreed terms.
4. Issue your invoices
Continue operating as usual: deliver goods or services and issue invoices to your customers.
5. Monitor accounts and payment activity
The insurer (or your business) monitors whether customers pay on time. If a customer defaults or delays payment for a covered reason, you may initiate a claim.
6. Submit a claim and receive compensation
If a payment issue arises, file a claim according to the policy’s conditions. The insurer will reimburse the agreed amount, helping to stabilise your cash flow.
Benefits of invoice insurance
Implementing invoice insurance in your business strategy offers several advantages:
1. Cash flow protection
Ensures you receive payment even if a customer defaults, maintaining steady cash flow.
2. Risk management
Reduces exposure to bad debts and financial losses from customer insolvency.
3. Enhanced credit control
Provides access to customer credit information, aiding in better decision-making.
4. Business growth
Enables you to extend credit to new or larger customers with confidence.
5. Improved financing options
Insured receivables can enhance your borrowing capacity with lenders.
Considerations before choosing invoice insurance
While invoice insurance offers significant benefits, it's important to consider the following:
1. Cost
Premiums vary based on coverage scope, customer risk profiles, and the insurer's terms.
2. Coverage limits
Policies may have limits on the amount covered per customer or invoice.
3. Exclusions
Certain situations, such as disputes over goods or services, may not be covered.
4. Claim process
Understanding the claims procedure and required documentation is essential for timely compensation.
You offer credit terms to customers
If your business allows customers to pay after delivery (e.g., 30 or 60 days), you’re exposed to potential non-payment risks.
You operate in high-risk or late-paying industries
Sectors with frequent late payments or cash flow instability (e.g., construction, wholesale, manufacturing) may benefit from added protection.
You rely heavily on a few clients or are expanding
If a large portion of your revenue comes from a small number of customers - or you’re entering new markets - invoice insurance can safeguard your growth and revenue base.
How does invoice insurance compare to other financing options?
|
Feature |
Invoice Insurance |
||
|
Protection against default |
Yes |
Partial |
No |
|
Cash flow improvement |
Indirect |
Direct |
Direct |
|
Customer awareness |
No |
Yes |
No |
|
Debt incurred |
No |
No |
Yes |
|
Credit control retained |
Yes |
No |
Yes |
Have you ever thought about invoice finance to help improve your cash flow?
Invoice finance allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our invoice discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
Get in touch
Contact our friendly UK advisors on our freephone
0808 250 0859
8:45 - 17:15 - Monday to Thursday &
8:45 - 16:45 - Friday
The benefits of invoice finance companies such as Novuna Business Cash Flow
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