From credit risk to fraud risk: How business fraud insurance complements trade credit insurance

As businesses grow, expand into new markets and digitalize their operations, one fact becomes clear: the risks that threaten their cash flow have also evolved. Credit risk is no longer the only threat to your order‑to‑cash cycle. Fraud – especially sophisticated, identity‑based fraud – is another major risk which is further amplified by the use of AI.

Many companies already use Trade Credit Insurance to protect themselves against non‑payment by genuine customers. However, a growing share of losses no longer stems from insolvency or protracted default, but from fraud – fake buyers, manipulated invoices, diverted payments or dishonest insiders. These losses often arise upstream, before a genuine receivable even exists, and therefore fall outside the scope of Trade Credit Insurance.

This is where Business Fraud Insurance comes in. Together with Trade Credit Insurance, it forms a powerful combination that helps protect your order‑to‑cash process – from onboarding and orders to invoicing and payment collection.

Trade Credit Insurance is designed to protect your business against credit risk: when a real customer, with whom you have a genuine receivable, fails to pay. It is extremely effective at:

• Safeguarding your balance sheet and cash flow when buyers cannot pay.
• Supporting safer growth in new markets and with new customers.
• Strengthening your position in negotiations with banks and investors.

However, modern fraud schemes often exploit points in your process before a valid receivable has been created. In such cases, there is no genuine debtor – and therefore no basis for a Trade Credit Insurance claim. Typical examples include:

• A fake buyer impersonates a well‑known company and places orders that are never paid.
• A fraudster changes bank details on an invoice or via e‑mail, diverting payments to a fraudulent account.
• An employee or trusted partner manipulates internal systems to redirect funds.

These are no credit defaults, but fraud events. To protect these exposures, companies need a complementary solution.

Business Fraud Insurance addresses the growing universe of fraud risks that fall outside classic credit risks. It covers direct financial losses resulting from:

• External fraud, such as:
        - Fake buyer fraud
        - Fake CEO fraud
        - Invoice manipulation and payment diversion
• Internal fraud, such as:
        - Employee dishonesty and embezzlement.
        - Unauthorized transactions or misuse of access rights.
        - Theft of monetary assets or physical goods by trusted persons.

Crucially, Business Fraud Insurance is designed to step in when:

• There is no genuine receivable (e.g. fake buyer fraud), so Trade Credit Insurance cannot respond.
• The loss arises from deliberate deception or manipulation, not from the customer’s inability to pay.
• The perpetrator is internal (employee, contractor, trusted partner), which is typically excluded from many other insurance products.

Rather than overlapping, Trade Credit Insurance and Business Fraud Insurance protect different risk mechanisms. Trade Credit Insurance addresses the risk that real buyers do not pay. Business Fraud Insurance addresses the risk that fraudsters – inside or outside your organisation – create or exploit situations to divert money or goods.

When combined, they close critical coverage gaps and provide a more robust risk shield.

To understand how both work together, it helps to look at your order‑to‑cash process step by step. At each stage, different risks can surface – and different protections apply.

1.  Customer onboarding

• Risk: You may be dealing with someone who is not who they claim to be. Fraudsters set up fake companies, impersonate well‑known brands or use stolen identities to open accounts and place orders they never intend to pay for.
• Business Fraud Insurance helps if the “customer” later turns out to be a fraudster (fake buyer, identity fraud) and you have delivered goods or services to an entity that was never a genuine customer.
•  Trade Credit Insurance supports the assessment of real customers and, later in the process, covers non-payment of receivables. 

2. Sales Orders

• Risk: Orders and approvals can be manipulated. Fraudsters might send convincing e‑mails pretending to be a senior manager or key customer (“urgent order”, “confidential project”), pushing staff to confirm orders or change conditions without proper checks. Internally, someone with access rights might override limits or create unauthorized orders.
• Business Fraud Insurance can cover losses when orders are created or approved as a result of such deception or unauthorized internal actions.

3. Shipment

• Risk: Shipping instructions can be altered so that goods are sent to addresses controlled by fraudsters (e.g. “temporary warehouse”, “new distribution centers”). Changes often arrive via e‑mail from addresses that look almost identical to a known contact. Everything appears legitimate, but goods never reach the genuine customer.
• Business Fraud Insurance can respond if goods are shipped in good faith but based on fraudulent instructions.
  

4. Invoice

• Risk: Bank details and invoice information can be manipulated in several ways. For example, a fraudster may:
          -  Hack or spoof e‑mail accounts and send “updated bank details” that look like they come from a known supplier or customer.
          -  Intercept invoices and change the IBAN or account number before they reach the payer.
          -  Insert fake invoices into your payables process that mimic real suppliers.
  
  In all these cases, payments are made correctly – but to the wrong account controlled by the fraudster.
• Business Fraud Insurance can cover direct losses when payments are diverted through manipulated invoices or bank details, or when fake invoices are paid as part of a fraud scheme.

5. Payment collection

•  Risk: Even when everything is genuine, real customers can still fail to pay valid invoices. They may become insolvent, run into severe liquidity issues or stop paying for other reasons beyond your control.
• Trade Credit Insurance covers non‑payment of genuine buyers and protects your receivables at this final step.

How the cover works:

• Trade Credit Insurance  covers non‑payment from genuine customers, protects your balance sheet and supports your financial stability.
• Business Fraud Insurance  steps in when, for example, fraud  is discovered around the payment process (e.g. an insider diverting incoming payments).

Together, these two products provide a  continuous line of defense  from onboarding to payment collection.

Consider the case of an electrical goods manufacturer receiving an attractive order from a well-known department store chain. The order looks genuine:

• E‑mails use the right names, signatures and branding.
• Credit checks on the department store chain are positive.
• The order fits the company’s normal business profile.

Despite some unusual delivery address changes, the manufacturer ships goods worth more than €400,000. When the invoice is sent, the department store chain’s accounting team denies any knowledge of the order. A fraudster had impersonated a buyer from the department store chain, redirected the shipment to controlled distribution centers, and vanished with the goods.

This is a  typical fake buyer fraud case:

• The receivable is not genuine, because the real company never placed the order.
• As a result, Trade Credit Insurance cover does not apply, since there is no valid debtor.

However, Business Fraud Insurance can respond. In this example, Allianz Trade indemnified the manufacturer for €300,000 – the maximum liability previously agreed in the policy – preventing serious financial difficulties.

This is a clear illustration of how Trade Credit Insurance and Business Fraud Insurance complement each other: Trade Credit Insurance would protect against non‑payment by a genuine buyer, whereas Business Fraud Insurance steps in when the “buyer” never existed in the first place.

If you already protect your receivables through Trade Credit Insurance, you have taken a crucial step in managing credit risk. The next step is to extend that protection to the  fraud risks that threaten your order‑to‑cash process long before an invoice becomes due.

By integrating Business Fraud Insurance alongside your existing Trade Credit Insurance, you can:

• Align protection with how fraud and credit risks really occur.
• Minimize coverage gaps across onboarding, ordering, shipment and payment.
• Strengthen your governance and resilience against both internal and external fraud.

To find out how Business Fraud Insurance can complement your Trade Credit Insurance and protect your full order‑to‑cash cycle, contact us today.