Trade Credit Insurance: The protection too many SMEs don’t know they need
For most SMEs, insurance is about protecting what they own.
For most SMEs, insurance is about protecting what they own. Buildings. Vehicles. Equipment. Liability.
Iain Gunn, Trade Credit expert, outlines why Trade Credit Insurance is becoming an increasingly important tool for UK businesses, yet many still do not know it exists. That lack of awareness could leave smaller firms, in particular, exposed in today’s uncertain economy.
What is Trade Credit Insurance?
Trade Credit Insurance protects businesses if a customer fails to pay. This could be because of insolvency, late payment, or wider economic pressures. Without it, unpaid invoices can quickly damage cash flow. As Iain Gunn says, “You might be making sales, but if you’re not getting paid, your business is at risk.”
For many growing businesses, trade debtors are one of the largest assets on the balance sheet. Yet unlike property or vehicles, receivables are rarely thought of as something that can, or should, be insured.
That creates a significant protection gap.
SMEs know the risk, but many still do not insure it
Recent industry research highlights a striking gap in SME protection. While many businesses say that non-payment by a major customer would be a serious problem, only a small proportion actually have Trade Credit Insurance in place.
Awareness remains low. Around 33% of UK SMEs have never heard of Trade Credit Insurance. Among the smallest businesses, the gap is even wider, with 58% of sole traders and companies with 1-9 employees unaware of it. Awareness improves as businesses grow, with larger SMEs more likely to understand and use it.
This is reflected in take-up levels. Only 2% of sole traders use Trade Credit Insurance, rising to 9% for businesses with 1-9 employees, 16% for those with 10-49 staff, and around 30% for companies with more than 50 employees.
In short, the bigger the business, the more likely it is to protect itself.
However, smaller firms often have the most to lose. They typically have less financial cushion, so one unpaid invoice can have a far greater impact. As Iain explains, “Smaller businesses are often the most vulnerable, but the least protected.”
Why the gap exists
The barriers are not primarily about distrust. In fact, SMEs generally report strong trust in insurers and brokers.
Instead, the main reasons for low take-up are simple:
- “I don’t think the risk will affect my business.”
- “I’ve never been advised to take it out.”
- “I’m not familiar with the product.”
In other words, the issue is awareness and relevance, not confidence in insurance itself.
That matters, especially when many SMEs are changing rapidly. Research shows that 52% of SMEs report significant business change since their last insurance review, while around half have not reviewed their cover in the past 12 months. Growth, new customers, international trade, and concentration risk can all increase exposure to bad debt, yet insurance arrangements often remain static.
More than protection
Trade Credit Insurance is not just about covering losses. It is also about giving businesses the confidence to trade, grow, and plan ahead. It can:
- protect cash flow
- reduce the impact of bad debt
- support more confident trading decisions
- enable expansion into new markets
- strengthen conversations with lenders
- provide insight into customer creditworthiness
- reduce balance sheet volatility
In uncertain economic conditions, certainty of payment matters. For many businesses, that confidence can be just as valuable as the cover itself.
A product hiding in plain sight?
Trade Credit Insurance is often seen as specialist, complex, or only relevant for large corporates.
In reality, it is increasingly relevant to SMEs trading on credit terms. The problem is not necessarily a lack of need, but a lack of understanding.
The good news is that businesses that do take out Trade Credit Insurance see clear value in it. Research shows that 89% plan to keep their cover next year, and 85% would still renew even if premiums increased by 10%. That suggests that once businesses understand the product, they see it as essential.
A better question for SMEs
Rather than asking, “Do we need Trade Credit Insurance?”, it may be more useful to ask:
“If one key customer failed tomorrow, how exposed would we be?”
If the answer is uncomfortable, it is a conversation worth having.
Trade Credit Insurance is not just for large businesses. It is a practical way for companies of all sizes to protect cash flow, reduce risk, and trade with greater confidence in uncertain times.