Trade credit insurance

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

Trade credit insurance pays a seller a stated share of an invoice if the buyer fails to pay through insolvency or, under most policies, prolonged default. For a bank lending against receivables it changes what is being underwritten: the insured part of an open-account ledger leans on the insurer as well as the buyer, so it can be financed where uninsured paper would not be. The desk reads the policy as closely as the ledger — the buyer limits, the exclusions, the claims conditions — because cover that lapses on a late notification is not cover.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.