Invoice insurance explained

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    At Swoop, we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. While we adhere to a strict editorial policy, our goal is to simplify complex matters, offer transparent information, unravel jargon, and empower businesses to confidently make smart financial decisions.
    Chris Godfrey

    Page written by Chris Godfrey. Last reviewed on January 19, 2024. Next review due April 6, 2025.

    How can I protect my business against bad debt?

    The easiest way to protect your bottom line is to take out invoice insurance on your unpaid invoices.

    Find out all you need to know about invoice insurance

    With invoice insurance, a business pays a premium to an insurance provider, and in return, the insurer agrees to reimburse the business for a percentage of the unpaid invoice amount in the event of non-payment by the customer. This can help safeguard a company’s cash flow and financial stability, particularly in industries where late or non-payments are common risks.

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      What is invoice insurance?

      Invoice insurance, also known as trade credit insurance or accounts receivable insurance, is a financial product designed to protect businesses from losses due to non-payment of invoices by their customers. It provides coverage in case a customer is unable to pay their outstanding invoice due to insolvency, bankruptcy, or other financial difficulties.

      How does invoice insurance work?

      Invoice insurance protects you from unpaid invoices (accounts receivable). Let’s say your business has a customer who is unable to pay an invoice. If you’ve insured this invoice against customer insolvency, you won’t incur any financial loss if your customer doesn’t pay you. If your customer becomes insolvent or enters administration, you can usually file a claim for 90% of the invoice value. 

      How many invoices can I insure?

      This will depend on your insurance provider,; usually you can insure as many individual invoices as you like.

      What's the difference between invoice insurance and traditional trade credit insurance?

      You can think of invoice insurance as a flexible type of trade credit insurance. With invoice insurance you can select only the invoices that you want to insure, whereas with traditional trade credit insurance you generally buy insurance for your company’s entire accounts receivable.

      How do I take out invoice insurance?

      Step 1: Register your details with Swoop.
      Step 2: We’ll assess the risk of each invoice and share this with you.
      Step 3: You choose which invoices you’d like to insure.
      Step 4: The debt will be collected if payment is late.
      Step 5: You’ll receive 90% of the value of your invoice(s) if your customer is insolvent.

      How long does the cover last?

      Your invoices are covered for 12 months from the invoice due date.

      What's the maximum invoice amount that I can insure?

      You can insure invoices up to £500,000, depending on the risk associated with your customer.

      Can I take out invoice insurance for an invoice I've already issued to a customer?

      Yes. You can insure pre-issued invoices for up to half of their payment term.

      What's the difference between invoice insurance and invoice finance?

      Invoice insurance gives you protection against credit risk – most likely customers being unable to (or refusing to) pay you. Invoice finance is more about smoothing out your cash flow – you are advanced most of the value of an invoice (or all your invoices), in the full expectation that it will be paid. It’s an advance i.e. a debt product. You can of course take out invoice insurance as a bolt-on to invoice finance.

      How many UK businesses are at risk of insolvency?

      According to the latest figures from the Office of National Statistics, more than 1 in 10 UK businesses are at a ‘moderate-to-severe risk’ of insolvency (August 2022). 22% of businesses surveyed said rising energy costs were their main concern.

      Read more: our guide on business energy and how to reduce energy costs.

      What is the difference between corporate insolvency and bankruptcy?

      If a business is insolvent it doesn’t necessarily mean it’s destined for bankruptcy. Insolvency is essentially a state of economic distress, whereas bankruptcy refers to the actual court order that summarises how an insolvent debtor will deal with unpaid obligations. This will usually involve selling assets to pay creditors and erasing debts that can’t be paid.

      Written by

      Chris Godfrey

      Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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