7th July 2025
Bad debts are a serious concern for businesses operating in the GCC. Even when companies take all the right steps to prevent cash flow problems and avoid late payments, they can still be exposed to non-payment and customer defaults. When a customer is unable to settle outstanding invoices — or shows signs of financial distress — the supplier or service provider extending credit is left with a bad debt expense. This bad debt expense must be written off against the company’s accounts receivable, reducing the total value of receivables on the income statement.
In the Gulf region, where customer insolvency and business bankruptcy can occur with little warning, bad debt losses can be damaging to long term business performance. However, there are practical ways to reduce bad debts and protect against insolvency risk. In this article, we explain the role of bad debt protection, compare bad debt protection vs credit insurance, and explore how businesses in the GCC can use insolvency protection to indemnify losses and strengthen their financial coverage ratio.
Summary
Key Takeaways
- Bad debts in the GCC can escalate quickly, especially due to sudden customer insolvency or bankruptcy, harming long-term financial health.
- Bad debt protection helps absorb losses when customers default, safeguarding revenue and reducing pressure on internal credit teams.
- Trade credit insurance offers broader coverage, protecting against both insolvency and delayed payments, and includes credit insights to prevent risk.
- For many GCC businesses, the cost of protection is justified by the ability to trade confidently and preserve working capital.
What is bad debt protection?
While one or two bad debts of small value may not significantly affect your business, larger unpaid amounts or multiple defaults can result in serious bad debt losses. This not only impacts revenue but may also increase a company’s exposure to insolvency risk or even lead to business bankruptcy in severe cases. In addition to the monetary loss, bad debts can complicate accounting processes and consume valuable staff time and resources in attempting to collect unpaid invoices. In such situations, the bad debt protection cost is often a worthwhile investment.
Bad debt protection helps businesses limit losses when customers are unable to pay their bills due to customer insolvency or other financial difficulties. While a company may not be able to eliminate bad debt expense entirely, it can take steps to reduce its impact. One such approach is maintaining an allowance for bad debts — a financial provision to absorb expected defaults.
Another way to reduce bad debt expense is by setting clear credit limits when extending terms to customers. These limits can be used to control exposure to potential bad debts, both across the customer base and with individual clients. For example, businesses operating in the GCC might impose stricter credit terms depending on a customer’s sector, payment history or location. In some cases, a company might decide not to extend credit at all, instead requiring prepayment or a letter of credit to ensure payment is guaranteed.
Companies can also review and adjust their credit policies based on changing market conditions. If customers in a specific region or industry within the GCC are struggling financially, businesses may choose to apply tighter credit requirements for those segments. The same approach can be used for customers with overdue balances or who consistently breach payment terms. This helps protect the business, reduce the risk of customer bankruptcy, and improve the coverage ratio of receivables.
By using a combination of internal credit controls and external insolvency protection, GCC businesses can better manage credit risk and indemnify themselves against major financial losses linked to bad debt.
How much does bad debt protection cost?
The bad debt protection cost for your business and specific needs depends upon the type of protection you buy.
It usually varies depending on the provider, the nature of your business, your business industry, the level of finance and the timeframes. So the first thing you should do is ask for a bad debt protection insurance quote.
For many GCC businesses, the cost is justified by the potential to indemnify major bad debt expense resulting from customer bankruptcy or non-payment.
What are the benefits of bad debt protection insurance?
Bad debt protection insurance provides payment when a customer is insolvent and is unable to pay its bills. Any losses are absorbed by the finance provider rather than your own company.
It is particularly useful in the case where you have a doubt about some specific clients’ ability to pay in due time. This way, it ensures you have a safety net, especially if these clients have had past experiences of bad debt or if they represent a large percentage of your total revenue.
Bad debt protection insurance also saves you staff time and resources you would have spent on accounting processes and on the collection on the debts.
However, because there are reasons other than insolvency for customer non-payment, this type of bad debt account protection is of limited use for most companies
Bad debt protection vs credit insurance: what’s the difference?
If bad debt protection does not fully meet your business needs, a strong alternative is trade credit insurance, also known as bad debt insurance or accounts receivable insurance. This type of coverage protects against a wider range of bad debt-related losses, beyond just customer insolvency.
Unlike bad debt protection, which mainly covers confirmed customer insolvency, credit insurance also covers protracted default — when a customer is still solvent but fails to pay or delays payment beyond agreed terms. This is especially relevant for GCC businesses trading on open account with both regional and international buyers.
A good trade credit insurance policy goes further by offering predictive protection by providing credit data and intelligence designed to help companies improve their credit-related decision-making and credit management. If losses still happen despite preventive steps, the insurer helps indemnify those losses.
A trade credit insurance provider can also tailor a policy and cover additional risks such as:
- Non-payment due to natural disaster.
- Political risks like inconvertibility or government intervention.
- Pre-shipment losses, such as when custom goods cannot be resold.
- Losses occurring after shipment by a contracted third party.
- Losses occurring when selling on consignment terms.
Many GCC companies rethink their approach to bad debt after facing large bad debt losses from key clients. Recovery efforts can drain staff time and resources. By investing in credit insurance, businesses gain both insolvency protection and the flexibility to grow safely with new customers.
Wondering if Trade Credit Insurance can help your business?
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Allianz Trade is the global leader intrade credit insurance and credit management, offering tailored solutions to mitigate the risks associated with bad debt, thereby ensuring the financial stability of businesses. Our products and services help companies with risk management,cash flow management, accounts receivables protection, Surety bonds, business fraud Insurance, debt collection processes and e-commerce credit insurance ensuring the financial resilience for our client’s businesses. Our expertise in risk mitigation and finance positions us as trusted advisors, enabling businesses aspiring for global success to expand into international markets with confidence.
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