All 23 Collections & Bad Debts questions
More in Collections & Bad Debts
What is the difference between the direct write-off method and the allowance method? What is the allowance for doubtful accounts and how is it recorded? How do you record the recovery of a previously written-off account? What is the percentage-of-sales method for estimating bad debt? How do you prioritize collections to maximize cash recovery? What is the collection effectiveness index (CEI) and why use it? How do payment plans help recover distressed receivables? What legal/regulatory considerations apply to collections? How does dispute management connect to collections and bad debt? How do CECL and IFRS 9 change bad-debt estimation for receivables?
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What is credit insurance and how does it protect receivables?

Intermediate

Answer

Trade credit insurance covers losses if insured customers fail to pay due to insolvency or protracted default. The insurer sets credit limits per customer; covered losses are reimbursed (less a deductible/coinsurance). It protects cash flow, supports safer expansion of credit, and can improve financing terms, at the cost of premiums.
Real-world example A credit-insured exporter recovers 90% of a defaulted overseas customer's balance from its insurer instead of writing it all off.

Common follow-ups: What does the insurer's credit limit control? | What are the trade-offs of credit insurance?

Credit Control Collections & Bad Debts Vendor Management
All 23 Collections & Bad Debts questions