What is trade credit insurance?
In open-account sales of goods or services, the buyer may fail to pay on the agreed date. Placing this risk under institutional cover is the core function of trade credit insurance (also called credit insurance).
A critical note: Trade credit insurance does not mean "every unpaid invoice is automatically indemnified." The buyer credit limit, compliance with policy conditions, notification obligations and the occurrence of a covered trigger together determine the right to a claim.
Coverage triggers
Insolvency
Court-declared bankruptcy of the buyer. A strong trigger; compliance with notification deadlines is mandatory.
Concordat / Insolvency Proceedings
The buyer entering court-supervised debt restructuring. Conditions and policy procedures are decisive.
Protracted Default
The buyer's failure to pay beyond a defined waiting period after the due date (typically 60–180 days).
Other Commercial Risks
Other payment failure events as defined in the policy. Must be explicitly stated in the wording.
Simple delay does not trigger coverage: A buyer paying 15–30 days late generally does not activate trade credit insurance coverage. The right to indemnification does not arise before the protracted default period defined in the policy has elapsed. This threshold is separate from the overdue notification obligation.
Three models: which one suits you?
Trade Credit Insurance
State-Backed Trade Credit Insurance
Short-Term Export Credit Insurance
Important: State-Backed Trade Credit Insurance is not the same product as Türk Eximbank export credit insurance. The former focuses on domestic trade receivables; the latter protects export receivables against both commercial and political risk. These two systems are not interchangeable.
Private market trade credit insurance: technical structure
The terms of private market policies vary considerably by insurer and policy. The concepts below describe the general framework.
Whole Turnover Structure
Whole turnover means insuring the entire eligible sales portfolio (or a specified large portion of it). The insurer does not accept the policyholder cherry-picking only the riskiest buyers — this prevents adverse selection. Whole turnover allows the insurer to assume risk in a balanced way across the portfolio.
Buyer Credit Limit and Discretionary Credit Limit (DCL)
The policyholder requests a buyer credit limit from the insurer for each buyer. The insurer assesses that buyer independently and decides on the limit. The limit differs from the commercial credit limit the company grants to its customer — it reflects the insurer's own risk view.
A Discretionary Credit Limit (DCL) is the flexibility limit up to which the policyholder may use its own initiative without prior insurer approval. This amount is set in the policy; a formal limit request is mandatory for buyers exceeding the DCL threshold.
Top Buyer Concentration
When a significant share of the policyholder's revenue depends on a small number of buyers, this is top buyer concentration risk. Insurers consider this both at underwriting and in limit decisions. Highly concentrated portfolios may face greater scrutiny and more restrictive terms.
Core policy mechanics
- Limit increase / reduction / cancellation: The insurer may monitor and change buyer limits during the policy period.
- Overdue declaration: The obligation to notify the insurer of an overdue receivable before the period specified in the policy expires.
- Coinsurance: The proportion covered by the insurer; the remaining share stays with the policyholder (e.g. 85% insurer / 15% policyholder).
- Deductible / franchise: The loss portion borne by the policyholder per claim or in aggregate per year.
- Maximum liability / aggregate limit: The total upper limit the insurer assumes for all claims during the year.
State-Backed Trade Credit Insurance
State-Backed Trade Credit Insurance is a system that enables businesses — particularly SMEs — to insure their domestic open-account trade receivables with state support. It has a different structure and operation from a private market policy.
Key features of the system
- Coverage of domestic trade receivables is the primary focus; export receivables are outside this system's scope.
- Buyer limits are determined from a central risk assessment pool — different from the individual underwriting structure of private market policies.
- Admission criteria are assessed on the basis of the company's turnover, trade history and risk profile.
- Compliance with the procedures and deadlines specified in the policy for overdue receivables is mandatory.
Application and current criteria
Admission conditions, premium rates, maximum coverage and indemnification rates are set by the current regulations of the official authorities and the system operator. These figures must be verified from up-to-date official sources at the quotation stage; publishing fixed figures would be misleading.
How to assess your eligibility: Neolife analyses your turnover structure, receivables portfolio and risk profile, and prepares a comparison of your suitability for the State-Backed system against private market alternatives.
Türk Eximbank Short-Term Export Credit Insurance
Türk Eximbank offers a Short-Term Export Credit Insurance programme for exporters. This programme provides cover against collection risk arising from open-account sales to overseas buyers.
Key features of the programme
- Export sales on terms up to 360 days to buyers in countries covered by Türk Eximbank may be insured.
- Both commercial and political risk are covered under the same roof — in the private market, political risk coverage varies by policy.
- A separate buyer credit limit is allocated for each buyer; the limit request is made to Türk Eximbank.
- According to Türk Eximbank's official statement, the loss indemnification rate is 90%.
- The programme does not only provide collection cover; by using the policy as collateral, it can also facilitate access to financing.
- Compliance with notification procedures for overdue receivables is mandatory.
What is political risk and why does it matter?
Political risk is the inability to collect an export receivable due to causes independent of the buyer — such as war, revolution, state intervention, transfer prohibition or currency restrictions in the buyer's country. This risk is not always included at the same level in private market policies; it is one of the key differentiators of the Türk Eximbank programme.
Source: Information in this section is based on Türk Eximbank's official Short-Term Export Credit Insurance product descriptions. Türk Eximbank is not a partner or product of Neolife; exporters apply to the programme directly through Türk Eximbank. For current limits, eligible country lists and conditions, always refer to Türk Eximbank's official channels.
Comparing the three models: decision-maker table
| Criterion | Private Market | State-Backed | Türk Eximbank |
|---|---|---|---|
| Primary target customer | All sizes, including export | Primarily SMEs, domestic | Exporters |
| Domestic receivables | ✓ | ✓ (Primarily) | ✗ |
| Export receivables | ✓ (Policy-dependent) | ✗ | ✓ |
| Commercial risk | ✓ | ✓ | ✓ |
| Political risk | Policy-dependent | ✗ | ✓ |
| Buyer credit limit | Independent underwriting | Central pool | Türk Eximbank decision |
| Whole Turnover | ✓ (Typical) | ✓ | ✓ (Programme-wide) |
| Selected buyer flexibility | Possible by product | Limited | Not applicable |
| Turnover criterion | By insurer | Per system | Türk Eximbank conditions |
| Indemnification rate | Varies by policy | Per system | 90% (official) |
| Premium structure | Turnover-based, risk profile | Per system | Türk Eximbank tariffs |
| Risk monitoring | Continuous buyer analysis | Central data | Türk Eximbank |
| Collection / Recovery | ✓ Coordinated | Per system | ✓ |
| Financing / assignment | Policy-dependent | Conditions-dependent | ✓ May facilitate |
| Application channel | Broker / insurer | Authorised channels | Türk Eximbank |
| Best suited when | Domestic + export mixed portfolio, large turnover, flexibility needed | SME, domestic focus, ease of entry | Export-heavy, political risk and financing access important |
How does the buyer credit limit work?
The buyer credit limit is directly linked to the maximum credit risk the insurer is willing to assume for a specific buyer. The commercial credit limit a company grants to its customer is not the same as the insurance limit set by the insurer.
Impact of a limit reduction
If the insurer detects a deterioration in the buyer's financial position, it may reduce or cancel the existing limit. In that case:
- Sales completed before the limit reduction and not yet collected may — depending on the policy wording — remain partially protected.
- New shipments made after the limit is cancelled fall outside insurance coverage; the insurer's position must be clarified before making new sales.
- This is why actively monitoring buyer limits throughout the policy period is far more critical than only assessing them at inception.
Concordat, insolvency and default: the distinctions matter
Legal Insolvency
Court-declared bankruptcy. One of the clearest coverage triggers in trade credit insurance. The policyholder must comply with notification obligations and submit the required documents on time.
Strong triggerConcordat / Insolvency Proceedings
The buyer entering court-supervised debt restructuring. Filing for concordat may be a trigger, but "filed = indemnified the next day" is not correct. The type of proceedings (provisional / final), the due date of the receivable, compliance with notification deadlines and policy procedures determine the right to indemnification. Each concrete case must be evaluated in light of the policy wording.
Careful evaluation requiredProtracted Default
Payment failure by the buyer beyond the waiting period defined in the policy (typically 60–180 days) after the due date, without a formal insolvency declaration. Compliance with notification deadlines is critical for this trigger — late notification can jeopardise the right to indemnification.
Trigger — notification deadline criticalSimple Payment Delay
A buyer paying a few weeks late typically does not trigger trade credit insurance. If the protracted default period has not yet elapsed, a claim does not arise; the overdue notification must however be made within the period specified in the policy.
Does not trigger coverage on its ownOverdue declaration
This is one of the most critical procedural obligations in trade credit insurance. Late notification can partially or entirely forfeit the right to indemnification.
Detect the overdue
Track via your monitoring system that the buyer has not paid within the period approaching the notification threshold specified in the policy.
Check the notification deadline in the policy
Every policy has a firm deadline for overdue notification. The insurer must be notified before this deadline expires. Exceeding it may result in loss of the right to indemnification.
Consult the insurer before making new shipments
Making new shipments to a buyer with an overdue receivable in breach of policy procedure can result in those new sales falling outside coverage or jeopardising indemnification for the existing receivable.
Collect documents for the claim file
Invoices, delivery notes, correspondence with the buyer, payment follow-up records and any legal correspondence. Missing documents will delay the claims process.
Coordinate collection follow-up with the insurer
During the claims process the insurer may take over or coordinate collection follow-up. Any independent legal action must be shared with the insurer.
Common mistake: Delaying notification with the expectation "we are in talks with the buyer, they might pay." While waiting, the policy's notification deadline can expire and the right to indemnification can be lost. When in doubt, notifying the insurer and then waiting is always safer than waiting and then notifying.
Whole turnover or selected buyer?
Whole Turnover
All or a specified large portion of the policyholder's eligible sales portfolio is insured. To prevent adverse selection, the insurer does not allow the policyholder to include only the riskiest buyers. This approach is the general standard in private market policies and the Türk Eximbank programme.
Selected Buyer / Named Buyer Model
Including specific customers in the policy or obtaining coverage only for designated buyers. This structure is not available with every insurer or in every market; under certain conditions it may be offered in some private market products. The Türk Eximbank Short-Term Export Credit Insurance is a broad programme — it cannot be used for only a few selected buyers.
Practical implication: The request "we only want to insure the receivables from our top 3 customers" is generally not accepted under a whole turnover structure. Product and insurer selection must be shaped to match this need.
Turnover declaration and premium mechanism
The premium for a private market trade credit insurance policy is generally determined by the estimated turnover declared at policy inception. The premium is calculated on this turnover.
- Minimum / deposit premium: Payable even if the premium accruing during the year falls below this amount; it sets the minimum cost of the policy.
- Actual sales declaration: The policyholder periodically declares to the insurer its eligible sales within the coverage period.
- Year-end adjustment: If actual turnover is higher or lower than the initial estimate, the premium is adjusted accordingly at year end.
- Excluded sales: Sales falling under exclusion criteria defined in the policy (e.g. cash sales, intra-group sales, specific sectors) are outside coverage and are not included in the turnover declaration.
This mechanism is not identical across all private market policies; premium structure and periodic declarations vary by insurer and product.
How is indemnification calculated?
Basic formula
In practice, several elements affect the calculation:
Important: The buyer credit limit and the indemnification limit are not the same. The buyer credit limit shows the maximum insurable risk; the actual indemnification is what remains after deducting the deductible, coinsurance share and offsets from that limit.
Collection and Recovery: the process does not end with indemnification
Paying the indemnification is not the end of the claims process. After paying indemnification, the insurer is subrogated to the right to collect the receivable and continues collection efforts against the buyer.
Collection Process
After paying indemnification, the insurer may initiate legal proceedings against the buyer for collection. Legal processes and collection agencies may be engaged at this stage.
Recovery Sharing
If collection is successful, the amounts recovered are shared between the policyholder and the insurer. The sharing ratio is determined by the coinsurance ratio and policy conditions.
Policyholder's Contribution
The policyholder may be required to provide the necessary documents and information during the collection process, accept the transfer of authority and contribute to legal proceedings. These obligations vary by policy.
Impact on bank and factoring financing
Insured receivables may carry greater reliability as collateral for financial institutions. Türk Eximbank also officially states that its Short-Term Export Credit Insurance policy can facilitate the exporter's access to financing.
- Receivable quality improves: An insured receivable can improve the risk perception of a bank or factoring company.
- Assignment of policy or claim: In some policies it is possible to assign the insurance rights to a bank or factoring company. The availability and conditions of this option depend entirely on the policy wording and the insurer's consent.
- Not an automatic credit guarantee: Insured receivables do not automatically increase bank credit limits. The financial institution always conducts an independent credit assessment.
- If you plan to assign: Clarify the assignment clause from the outset during policy negotiation; adding it later may require insurer approval.
What does Neolife do as a broker?
What matters is not the cheapest trade credit insurance policy but the credit risk structure that best fits the company's sales model. This difference emerges through specialist technical brokering.
Analyses the receivables portfolio: Turnover structure, maturity profile, customer distribution and historical bad debt are examined.
Maps buyer concentration: The weight of the top 10–20 buyers in the portfolio and the risk of dependence on a single buyer are assessed.
Identifies the appropriate model: Private market, State-Backed system and Türk Eximbank options are evaluated against the company's profile — advantages and limitations of each model are compared.
Coordinates market quotations: Quotations are obtained from multiple private market insurers; terms and limits are compared.
Manages limit requests: Coordination with the insurer on limit allocation for critical buyers; challenges against low limit decisions and pursuit of alternative structures.
Compares policy wording: Coverage triggers, overdue declaration, coinsurance ratio, deductible and assignment conditions are reviewed line by line.
Manages overdue and claims processes: Compliance with notification deadlines is ensured, the claim file is prepared, and the insurer is engaged throughout the claims process.
Optimises renewals: Claims history, premium adjustment and limit structure are reassessed at every renewal.