Trade credit insurance protects against a customer’s failure to pay at all — using the same expected-value framework this site applies to cyber liability and extended warranties.
How it works
Estimated customer default probability times the average receivable balance at risk gives the expected annual default loss. Subtracting the annual premium gives the net expected value of carrying the policy.
What this does not include
This doesn’t include the business value of extending more generous credit terms to win sales, which trade credit insurance can also enable by reducing the downside risk of doing so — a strategic benefit beyond the pure loss-avoidance math shown here.
How to use this calculator
- Enter estimated default probability, average receivable balance at risk, and annual premium.
Frequently asked questions
How is this different from factoring receivables?
Factoring (covered by this site’s separate invoice-factoring calculator) sells receivables for immediate cash regardless of eventual collection; trade credit insurance instead reimburses losses specifically when a customer fails to pay.
Does trade credit insurance cover the full receivable amount?
Typically not 100% — policies commonly cover 80%-95% of an insured receivable, leaving the insured business to absorb a small co-insurance portion of any loss.
Can trade credit insurance help access better financing terms?
Yes — insured receivables are often more attractive collateral to lenders, potentially improving borrowing terms on top of the direct default protection.
