Bad Debt Protection has two meanings. It is either a bolt on service, specifically designed to complement an invoice finance facility.

Or it can refer to credit insurance whereby businesses will insure themselves against the non payment of invoices.

In both cases it provides business owners with peace of mind by safeguarding the business against non-payment of invoices.

Should a customer fail to pay, bad debt protection means any loss is absorbed by the finance provider rather than your own company.

Get a Fast, No Obligation Bad Debt Protection Quote

  • Up to 100% bad debt protection on customers who have been pre-approved by our expert team
  • Completely free and no obligation service
  • Exclusive deals & low rates
  • Find the providers that will give you the best rates and terms
  • Your security and privacy is guaranteed

Step 1 of 2

What is Bad Debt Protection?

Bad Debt protection is used to describe:

  • Trade Credit Insurance – an insurance against non payment of business invoices.
  • Non-Recourse Factoring – A type of invoice finance where the factor assumes the risk of non payment of invoices

Bad Debt Protection Explained

UK SMEs wrote off almost £8.6bn of bad debts in 2021, according to business debt experts Company Debt. Late payment is one of the largest threats to SME survival, with 60% of small business failing within their first five years of trading.

Customer non-payment can occur for a number of reasons, such as insolvency, payment default or dispute, and can frequently cause profitable firms to go bust because they simply don’t have enough working capital or bad debt protection in place to bounce back after the loss of tens of thousands of pounds. COVID 19 susbtantially worsened the economic disruption to British businesses due to bad debt.

Advantages of Bad Debt Protection

  • BDP ensures that businesses hold on to their hard earned sales even in the event of non-payment. It can be put in place quickly; frequently within 24 hours and debts can also be backdated.
  • Bad debt protection is useful where there is an element of doubt about the customer’s ability to pay now or in the longer term. It can also be a good safety net if the business has suffered past experiences of bad debt or when a few customers represent a large percentage of total sales.
  • As part of the process, the factor or invoice discounting provider works with the business to assess any potential risk from new and/or existing customers, carrying out credit checks and providing advice, which minimises the business’ exposure to bad debts.
  • The business owner can also choose, which customers should be covered. This process of monitoring customers to avoid bad debt frequently gives businesses the confidence they need to expand by taking on new customers and orders in the knowledge that their payments are secure.


  • Although it may a good way to manage risk, not all factors or invoice discounting companies take on non-recourse services. Non-recourse factoring or invoice discounting is also more expensive (often by as much as a percentage point) and it can be limited to invoices of customers that are most likely to pay.
  • If the customer has a poor credit history, the factor may decide against taking on the risk of non-payment. Finally, non-recourse factoring or invoice discounting doesn’t always protect the business from any risk of customer nonpayment.
  • Many providers offer non-recourse accounts that only apply if the customer becomes bankrupt.

What Happens when a Customer Doesn’t pay?

When a customer becomes insolvent, for instance, the provider manages the procedure on behalf of the business, saving time and money by liaising with the insolvency practitioner.

Once it has all the necessary documentation, the process can be resolved in as little as weeks, which prevents money from seeping out of the business and enables business owners to focus on what they do best, which is the day-to-day running of the business.

How Much Does Bad Debt Protection Cost?

Like all invoice finance, the cost depends on the provider, the level of finance, and the timeframes. It also does not usually apply for a period after the factoring commences, so that the lender can build up a level of trust.

In a typical example, 90% of the invoice is covered. So if the net invoice is £50,000 + VAT, £45,000 is covered by the bad debt protection, and £10,000 of the VAT could be reclaimed from HMRC.

Minus an administration fee of around £1200, around £53,800 is recovered.

Features of Bad Debt Protection

  • You offset the risk of bad debt
  • Offers Protection for up to 100% of bad debts
  • Can be applied to all or select customers
  • All current and prospective customers are credit checked
  • All administration is handled by the provider
  • Huge saving of money and time in the event of customer insolvency

4 Ways to Protect Your Business Against Customer Insolvency or Non Payment

  • Implement a rigorous credit checking policy for new clients
  • Once you’ve researched your clients, set appropriate credit limits based on their levels of risk
  • If you’re using invoice finance to boost your working capital cycle, ensure you opt for a bad-debt bolt on facility in case of customer no payment
  • If you’re working in a volatile industry or concerned about a particular client, consider credit insurance