An invoice is not the same as cash. Most business owners know this - yet they still fall into the same trap over and over again: revenue looks good, the order book is full, but the bank account is in the red. The reason: a customer is not paying. Or has stopped paying altogether.

In 2024, around 21,964 companies in Germany filed for insolvency - an increase of 23.1 percent compared to the previous year and the highest level since 2015. According to CRIF, up to 26,000 corporate insolvencies are forecast for 2025. Because insolvencies trigger domino effects, any company that sells on account is potentially at risk.

The question is not if, but how you protect yourself. This is exactly where theory and practice usually diverge: choosing the right protection instruments is complex - and without independent advice, often expensive.

The problem: Bad debts hit German mid-sized companies particularly hard

According to an international comparative study, the majority (54 percent) of German companies are affected by bad debts - in other countries, the average is only 35 percent. This is reported by marktundmittelstand.de.

On top of that: In 2024, estimated insolvency losses for creditors rose to around 55 billion euros - more than double the previous year's figure of 26.5 billion euros. Source: CRIF Corporate Insolvencies 2024.

The causes are varied: volatile markets, rising energy costs, growing supply chain issues and ongoing economic weakness. For SMEs that regularly sell on account, this is a structural risk - not an isolated incident.

Key takeaway: If you sell on account, you are effectively running a credit business - bearing the full default risk yourself, without interest, without collateral, without a proper credit check.

Three instruments, one decision - but which one is right?

Companies that want to protect their receivables and liquidity have three proven instruments available:

1. Trade credit insurance

Trade credit insurance protects open receivables from goods delivered and services rendered. The insurer continuously monitors the creditworthiness of your customers, sets credit limits and pays out in the event of a loss - for example if a customer becomes insolvent or is in prolonged default.

Typically suitable for: Companies with a broad customer base, B2B business on account, and growth in domestic and international markets.

Important to know: There are different types of policies - from comprehensive policies covering the full portfolio to single-buyer policies and top-up covers. The right choice depends on your industry, your customers, and your risk profile.

2. Factoring

With factoring, you sell your open receivables to a factoring company and receive immediate liquidity - typically 80 to 90 percent of the invoice amount within a few days. In true (non-recourse) factoring, the factor takes on the default risk in full.

Typically suitable for: Growth companies with long payment terms, high receivables and a need for immediate liquidity.

Important to know: Factoring is a financing tool, not an insurance product. There is confidential (undisclosed) and disclosed factoring, full-service and in-house models - each with different cost structures and different impacts on how your customers perceive you.

3. Surety bonds and guarantee insurance

Surety bonds are guarantees required by clients as security - for example in construction, plant engineering or public tenders. If these guarantees are issued through your main bank, they tie up your credit facilities. A guarantee insurance (surety bond insurance) offers an elegant alternative: the security is provided by the insurer, without using up your bank lines.

Typically suitable for: Trades, construction, project-based business, and companies with a recurring need for performance guarantees and bonds.

Why choosing the right instrument is so difficult - and so important

At first glance, the choice seems manageable: trade credit insurance, factoring or surety bonds. In practice, it is far more complex.

  • Trade credit insurance offerings differ significantly in coverage levels, exclusions, waiting periods and premium structures.
  • Factoring providers target different customer segments, have minimum volume requirements and differing fee models.
  • Guarantee insurance products vary in framework structure and flexibility depending on the insurer.

On top of that, a combination of several instruments is often the best solution - for example, trade credit insurance for your broad customer portfolio plus factoring for a major client that is critical to your liquidity.

If you negotiate directly with a single insurer or factoring provider without independent guidance, you are operating with an incomplete view of the market. That usually means you either pay too much - or end up underinsured.

The path to the right solution: How independent advice works

An independent specialist broker such as renz credit & consulting does not work on behalf of an insurer or factoring provider - but solely in the interest of your business. That creates a fundamentally different starting point.

Here is what a structured advisory process looks like in practice:

Step 1 - Needs analysis: How high is your open receivables balance? How long are your payment terms? Are there concentration risks with individual customers? Which industries and countries are you exposed to? Only an honest assessment of the current situation reveals where the real risks lie.

Step 2 - Risk prioritization: Not every risk is equally urgent. A broker prioritizes: Where is the potential damage greatest? Where is your liquidity most vulnerable? This weighting determines which instrument should be addressed first.

Step 3 - Market comparison: With access to a broad network of trade credit insurers, factoring companies and guarantee insurers, an independent broker obtains comparable offers - and explains transparently what really lies behind the conditions.

Step 4 - Concept development: The solution is tailored individually - often as a combination of several components, aligned with company size, industry and growth strategy.

Step 5 - Ongoing support: Advisory services do not end when the contract is signed. Limit monitoring, claims handling, adjustments as the business grows - a good specialist broker remains your point of contact in day-to-day operations.

What independent advice actually achieves - and what it is not

A common misconception: many companies assume a broker is more expensive than going direct. The opposite is often true.

An independent broker:

  • negotiates better terms, because they know the market and regularly place substantial business
  • avoids costly missteps, such as taking out a policy that has critical gaps when a claim occurs
  • relieves your finance team, by taking over administrative tasks such as limit requests or claim notifications
  • is neutral, meaning they have no incentive to push a particular product

What a broker is not: a promise of complete security. Trade credit insurance has exclusions, factoring providers have minimum requirements, surety and guarantee facilities have framework limits. Good advice creates realistic expectations - and helps you achieve the maximum possible within those boundaries.

When should you act?

There are warning signs that indicate you need to act quickly:

  • A customer has, for the first time, paid significantly late or not at all
  • You are planning growth into new markets or with new major customers
  • Clients are demanding bonds or guarantees
  • Your bank has reduced your credit line or requested additional collateral
  • Your receivables are growing faster than your revenue

Even without an acute incident, a neutral needs analysis is worthwhile - because if you only act after your first major bad debt, you are acting too late.

According to Creditreform, in autumn 2024 only 28.2 percent of SMEs stated that they had not suffered any bad debt losses - down from 34.4 percent the previous year. Source: Creditreform SME Report. The trend is clear: the risk is increasing.

Conclusion: Liquidity needs a plan - and an independent navigator

Bad debts are not destiny. They are a manageable risk - if you know the right instruments, use them correctly and do not rely solely on gut feeling.

The difference between working with an independent specialist broker and going directly to an insurer is not just about cost. It is about perspective: a broker sees the bigger picture - your risks, your market, the available solutions - and develops a tailored strategy from there.

renz credit & consulting supports mid-sized companies nationwide with exactly this task: independently, with an open outcome, and with a deep network in the markets for trade credit insurance, factoring and surety solutions. Get in touch - before a default forces your hand.

Frequently Asked Questions (FAQ)

When does trade credit insurance make more sense than factoring? Trade credit insurance is particularly worthwhile when you want to systematically protect many customers but do not need immediate liquidity. Factoring is the better option if long payment terms are putting direct pressure on your cash flow and you need funds right away. Both instruments can also be combined.

Does an independent broker cost extra? Usually not. The broker's remuneration is typically included in the insurance premium or in the provider's terms. The added value lies in better market knowledge, neutral analysis and often more favorable conditions than with a direct approach.

From what company size does trade credit insurance make sense? Trade credit insurance can be used effectively from an annual turnover of around one million euros - and, with the right customer portfolio, even below that. Single-buyer policies are also suitable for smaller companies with one or a few key customers.

What happens when there is a claim - who takes care of it? At rcc we also handle claims management. This means we support you with the claim notification, guide you through the process with the insurer and help ensure that valid claims are settled promptly.

What is the difference between a bank guarantee and guarantee insurance? The key difference: a bank guarantee uses up your credit line. A guarantee insurance policy provides the same level of security - but via the insurer, without tying up your bank facilities. That creates financial flexibility for growth and investment. You can find more details on our page about surety bonds and guarantee insurance.