Trade Credit Insurance as Protection from Bankruptcy Preference Risk: Negotiating for the Broadest Coverage

When purchasing TCI, a creditor should negotiate for the inclusion of policy provisions that grant the broadest possible protection from the risk of nonpayment of its accounts receivable and bankruptcy preference liability. Consulting with the right broker and attorney could be the difference between obtaining extensive, minimal, or no preference coverage.

A creditor purchases Trade Credit Insurance (TCI) to protect against the risk of a customer’s nonpayment of accounts payable owing to the creditor. This risk materializes upon a customer’s protracted nonpayment of invoices or bankruptcy filing. A creditor whose customer has filed for bankruptcy is stayed from collecting its prepetition claim and faces the prospect of a diminished or no recovery on its claim.