Two important terms in Trade Credit Insurance are insolvency and protracted default.

They describe different reasons why a customer may fail to pay.

What is insolvency? #

Insolvency generally refers to defined financial failure events involving the customer.

Depending on the policy, examples can include:

• Liquidation.
• Administration.
• Bankruptcy.
• Other formal insolvency procedures.

The exact definition is set by the policy.

What is protracted default? #

Protracted default generally refers to an insured customer failing to pay an eligible debt for a specified period even though a formal insolvency event has not occurred.

The policy normally sets the relevant waiting period and conditions.

Does every Trade Credit policy cover protracted default? #

No.

Some Trade Credit products cover both insolvency and protracted default, while other products may provide insolvency-only protection.

The policy structure needs to be checked carefully.

Why does the distinction matter? #

A customer can stop paying invoices long before it formally enters insolvency.

Where protracted default is insured, the policy may potentially respond without waiting for a formal insolvency event, provided the policy requirements are satisfied.