Trade credit insurance or factoring: which is better?
In short
Which is better depends on whether you lack protection or cash. Trade credit insurance (Warenkreditversicherung) costs about 1 to 3 per mille of turnover and pays only when a customer defaults. Factoring pays out 80 to 90 percent of an invoice at once but costs about 0.5 to 5 percent in fees plus interest. If you only fear bad debts, insurance is usually the cheaper choice.
Published ranges from German guides and provider comparisons. Neither trade credit insurance nor factoring has fixed tariffs.
Example
Typical range
Trade credit insurance, premium rate
about 1 to 3 per mille of turnover
Trade credit insurance, minimum premium
about EUR 500 to 6,000 a year
Factoring fee in general
about 0.5 to 5 percent of the invoice
Factoring according to a 2026 cost overview
0.3 to 2.5 percent fee, 3.5 to 6 percent interest a year
Credit check in factoring
about EUR 25 per customer
Research as of October 2026.
The sources date from 2024 and 2026.
The worked example is a guide value from our quoting practice using assumed rates from these
ranges.
Worked example
Trader with EUR 1.2 million turnover and 45 day payment terms
On average around EUR 148,000 is outstanding. We compare trade credit insurance with non recourse factoring at a 1 percent fee and 4 percent interest.
Trade credit insurance, 1 to 3 per mille plus check fees
about EUR 1,800 to 4,200 a year
Factoring fee, 1 percent of EUR 1.2 million
EUR 12,000
Interest, 4 percent on 90 percent of EUR 148,000
about EUR 5,300
Factoring in total
about EUR 17,300 a year
Here factoring costs four to ten times as much, but provides around EUR 133,000 of permanent liquidity. If you do not need that cash, the insurance is the cheaper choice.
Two tools for two problems
Trade credit insurance protects you from the loss when a customer does not pay. Money flows only in a claim; until then you wait for your invoices as usual. Factoring means selling your invoices to a factoring company, which pays most of the amount straight away.
With non recourse factoring (echtes Factoring) the factor also takes the default risk. With recourse factoring (unechtes Factoring) the risk stays with you. Only non recourse factoring can replace the protection of trade credit insurance at all.
Feature
Trade credit insurance
Factoring
Main benefit
protection against default
immediate cash
Cost
about 1 to 3 per mille of turnover
about 0.5 to 5 percent plus interest
Default protection
yes, up to the limit
only with non recourse factoring
Customer notices
usually not
yes with disclosed factoring
Collections
stay with you
often handled by the factor
When factoring is the better choice
Factoring makes sense when growth depends on cash: you pre finance materials, customers pay after 60 or 90 days and your bank will not extend your overdraft (Kontokorrentkredit). The higher price of factoring is then the price of money you would otherwise not have.
The fair comparison for factoring is therefore an overdraft plus trade credit insurance, not the insurance premium alone.
When trade credit insurance is the better choice
If you have enough cash and mainly fear losing a large customer, trade credit insurance is far cheaper. You keep the customer relationship, your terms and your own collections.
There is also the credit monitoring: the insurer often sees early when a customer is struggling and cuts the limit. With recourse factoring you do not get that warning.
Using both together
Factoring and trade credit insurance are not mutually exclusive. Many factoring companies require credit insurance or offer better terms if the claims under your policy are assigned to them.
If you already have trade credit insurance, check before switching to factoring whether the policy can be built in. That often saves paying twice for credit checks and cover.
Legal points to watch in Germany
If your customers' terms forbid assignment, assigning a money claim between merchants is still effective under German commercial law (section 354a HGB). For factoring it still matters whether your customers accept paying a new party.
Both routes face clawback: an insolvency administrator can reclaim payments made shortly before insolvency (sections 129 ff. InsO). Trade credit insurance covers this only if the policy includes it; a factoring contract says who carries that risk.
Step by step
Decide whether you lack cash or only fear bad debts.
Work out your average outstanding receivables and payment terms.
Get a quote for trade credit insurance and one for non recourse factoring.
Compare factoring with an overdraft plus insurance.
Check whether an existing policy can be built into a factoring deal.
Checklist
Recourse or non recourse factoring clearly stated in the contract
All factoring costs listed, including interest and check fees
Minimum premium and retention of the insurance known
Assignment bans in customer contracts checked
Clawback rules read in both contracts
Common mistakes
Comparing factoring with the insurance premium instead of with a loan
Signing recourse factoring and believing you are protected against defaults
Underestimating per invoice fees with many small invoices
Cancelling an existing credit insurance policy before factoring is in place
Questions and answers
Frequently asked
Is factoring a form of insurance?
No.
Factoring is the sale of receivables.
Only with non recourse factoring does the buyer also take the default risk.
Will my customers know about factoring?
With disclosed factoring yes, because they pay the factor.
With silent factoring usually not.
With trade credit insurance customers normally learn nothing.
Do I still need credit insurance with non recourse factoring?
Usually not yourself, because the factor carries the risk and often insures it.
For customers the factor will not buy, it can still make sense.
Which option improves my balance sheet?
Non recourse factoring can shorten the balance sheet because receivables are sold.
Credit insurance does not, but it makes receivables more valuable to banks as collateral.
What turnover do I need for factoring?
Traditional factors often ask for several hundred thousand euros a year.
Online providers also buy single invoices, usually at higher rates.
Where does an insurance broker help?
Factoring is agreed with a bank or factoring company.
Norman Nammert arranges trade credit insurance as an insurance broker (Versicherungsmakler);
