When a B2B Customer Defaults

A delayed payment is not necessarily a default, and a dispute is not insolvency. Understanding the commercial timeline of non-payment is critical for managing balance sheet risk and knowing when trade credit insurance actually responds.

1. The Delay

An invoice goes past due. In B2B trade, a 10 to 15-day delay is often operational rather than critical. Follow-up is commercial: statements, calls from accounts receivable, and halting future shipments if limits are breached. At this stage, no insurer or financier considers this a formal default.

2. Dispute vs. Inability to Pay

As delays stretch to 45-60 days past due, the reason becomes paramount:

• Dispute: The buyer claims the goods were faulty, delivered late, or the invoice is incorrect. Crucially, trade credit insurance does not cover disputes. The claim will be suspended until the dispute is legally or commercially resolved in the supplier's favor.
• Inability to Pay: The buyer acknowledges the debt but lacks the cash. This is credit risk.

3. Protracted Default & The Waiting Period

If the buyer simply stops communicating or acknowledges inability to pay without entering formal insolvency, policies define this as "protracted default."

If you hold trade credit insurance, there is typically a "waiting period" (e.g., 90 to 180 days past the due date) before a claim for protracted default can be filed. During this time, you must demonstrate active collection efforts.

4. Formal Insolvency

If the buyer enters formal administration or bankruptcy, the timeline accelerates. The debt is immediately recognized as a loss, and subject to policy terms, the waiting period may be waived. The insurer (if covered) will pay the insured percentage (typically 80-90%) of the debt, and the insurer will subrogate the right to claim against the insolvent estate.

The Financing Implication

If an invoice was financed (e.g., discounted with recourse) and the buyer defaults, the lender will "recourse" the debt back to you. That means repaying the advance immediately, which strains cash flow at exactly the moment a major loss has landed.

Disclaimer: General information only, not legal or financial advice. Policy terms vary significantly by insurer and jurisdiction.