Invoice Finance Bad Debt Protection UK 2026

Bad debt protection is the option to insure your invoice finance facility against customer default or insolvency. The provider sets a credit limit per debtor (based on credit checks) and covers you for typically 80-90% of the invoice value if that debtor fails to pay within an agreed period (usually 90 days past due) or becomes insolvent. Cover is integrated into the invoice finance facility rather than a separate insurance policy.

Typically 0.1-0.4% of insured turnover on top of base service charge, depending on debtor profile and sector. Aldermore charges around 0.15-0.4% per insured debtor. Bibby ranges 0.2-0.4%. HSBC and Lloyds negotiate based on portfolio. The total uplift over base invoice finance cost typically lands at 15-30% extra in service charge for full ledger cover.

Two scenarios trigger payout: (1) protracted default - customer fails to pay within 90 days of due date despite normal collections process, (2) insolvency - customer enters administration, liquidation or CVA. Cover is typically 80-90% of the insured invoice value, paid by the provider once you've completed the agreed collections protocol. Cover doesn't apply for disputed invoices or commercial disagreements with the customer.

Aldermore, Bibby Financial Services and HSBC Invoice Finance all have well-developed bad debt protection programmes. Aldermore is the strongest for SME ledgers (£250k-£5m turnover) with per-debtor credit limits set in advance. HSBC is the strongest for export ledgers (international credit cover via HSBC's global trade network). Bibby is strong for sector-specific risk (construction stage payments, recruitment debtor mix).

Bad debt protection (integrated into invoice finance) covers only invoices that have been funded through the facility. Trade credit insurance (a standalone policy from Atradius, Coface, Allianz Trade etc) covers your full ledger including invoices not on invoice finance, plus offers wider cover types. Most UK businesses with £1m+ turnover and significant export use trade credit insurance; those funding through invoice finance often use the integrated cover for simplicity.

Worth considering if (a) any single customer represents more than 20% of your sales ledger, (b) you're entering a new market or sector with unknown debtor risk, (c) you're growing fast and onboarding many new customers, (d) you operate in a sector with high insolvency rates (construction, retail, hospitality). Less critical if your debtor base is investment-grade (large UK plcs, government, NHS).