Manufacturer A (The policyholder) supplies goods to company B (the customer) on credit, with 30-day payment terms.

Unfortunately, company B begins to get into financial difficulty with increasing bad debts and cash flow problems.

Company B becomes insolvent and is unable to pay its debts to those who have supplied goods on credit.

With its ongoing monitoring of their policyholder’s customers, the credit insurer is aware of company B’s growing problems and as a last resort alerts manufacturer A that cover will be withdrawn for company B.

Manufacturer A is able to claim on its credit insurance policy for goods supplied prior to cover being withdrawn in accordance with the policy terms and any excess that is deductible. 

In doing so, manufacturer A is able to continue trading, preventing the business from having significant bad debts that could have hits its ability to continue trading and pay its own suppliers.