What decision does this trade credit insurance calculator support?
Korean trade credit insurance is designed to reduce the financial damage suffered by a seller when a buyer fails to pay a trade receivable after goods or services were supplied.
A large buyer may make sales operations efficient during normal periods, yet one payment stop can consume the supplier’s cash buffer and equity at the same time.
This calculator connects each major buyer’s outstanding balance, monthly credit sales, payment term, user-entered default probability and recovery rate with the actual quoted premium, compensation rate, deductible, buyer-specific insurance amount, and policy aggregate.
The useful question is not simply whether a premium looks low.
A company must also ask which buyers received insurance amounts, how much default loss remains after the compensation rate and deductible, and whether the aggregate could withstand stress across several major buyers.
The result does not approve insurance or promise a claim, but it turns the sales ledger into a structured buyer-limit discussion sheet for the Korea Credit Guarantee Fund, known as KODIT, or another insurer.
Korea-specific scope
This page uses Korean law and KODIT public guidance checked on August 17, 2026.
All monetary inputs remain in KRW, and the calculation is intended for domestic trade receivables unless a qualified adviser confirms that another product and wording follow the same structure.
It does not model export-country risk, foreign exchange, Korea Trade Insurance Corporation products, or cross-border policy wording.
Useful for
- A Korean supplier considering a larger open-account limit for a major customer
- An owner or finance officer comparing a real annual premium quote with expected loss reduction
- A credit-control team checking whether buyer insurance amounts still match current balances and payment cycles
- A renewal team that needs lower, base, and higher default-probability cases plus an aggregate stress
Not included
- Buyer credit lookup, rating, or automatic default-probability prediction
- Automatic premium pricing, underwriting, product ranking, or purchased-limit advice
- Coverage, insured event, admitted loss, exclusion, notification, or claim-payment decisions
- Joint-default correlation, credit VaR, Monte Carlo simulation, tax, discounting, or financing cost
Current Korean legal and official-source boundary
The Act establishes the account and the approved operating-method framework
The current Small and Medium Enterprises Promotion Act, law ID 001476 and MST 284099, was promulgated on March 5, 2026 and is effective July 1, 2026.
Article 61-2 provides the statutory foundation for a KODIT small-business trade receivables insurance account intended to prevent cascading insolvency caused by dishonored bills and a buyer’s nonpayment of trade receivables.
Article 61-7 requires an operating-method document covering premium rates, contract formation, insurance operation, claim payment, and subrogation, subject to approval by the Minister of SMEs and Startups.
The Enforcement Decree does not create one universal premium rate
The current Enforcement Decree, law ID 004972 and MST 287507, was promulgated on June 30, 2026 and is effective July 1, 2026.
Article 52-2 defines the insurance as compensation for property loss suffered by an SME that supplied goods or services and then experienced dishonor of a bill or a debtor’s nonperformance on the receivable.
Article 52-9 says premium rates are set in the Article 61-7 operating-method document after considering account balance and enterprise credit quality, so the calculator must not invent one statutory rate for every business.
Contract duties still control
Decree Article 52-10 allows refusal of payment, recovery of an amount already paid, or termination or rescission when the policyholder or insured violates the insurance contract.
A favorable arithmetic result cannot replace review of buyer selection, reporting duties, payment-term extensions, receivable management, insured events, claim deadlines, and recovery accounting.
How to use KODIT public figures correctly
KODIT’s public credit-insurance FAQ explains a general claim ceiling as the smaller of the buyer-specific insurance amount and actual loss multiplied by the compensation rate shown on the policy.
The FAQ describes a general compensation-rate range of 60% to 85%, while the enrollment guide describes differentiated annual premium rates of 0.1% to 5.0% for insured receivables under listed products.
The same public material says an average payment term above 180 days can restrict enrollment.
These numbers are review signals, not default inputs mandated for every quote.
Product structure, discounts, local premium support, buyer quality, transaction ratio, payment period, underwriting, and a special product such as Hana Insurance can change the result.
The calculator therefore accepts the quoted annual premium and actual policy terms directly, shows 180 days only as a warning boundary, and never clamps compensation or premium to a public range.
The published 0.1% to 5.0% range must not be treated as a market average, a guaranteed quote, or a valid rate for every product.
Enter the premium total shown in the current proposal and read the displayed implied rate only as annual premium divided by the projected credit sales entered on this page.
Prepare each input from actual documents
Current receivable balance
Use the analysis-date balance of open-account receivables and bills receivable attributable to the buyer. Separate disputed, overdue, assigned, factored, secured, or already insured items when their treatment differs.
Average monthly credit sales
Use the sales ledger or the latest four quarterly buyer-level tax-invoice summaries. Remove a one-time sale if it would distort the next policy period.
Average payment term
Measure days from receivable creation to the normal due date and compare the contractual term with actual receipts. Recheck KODIT guidance and the specific product if the average exceeds 180 days.
Default probability and recovery
These are internal planning assumptions. Default probability is the user-entered one-year chance of the modeled nonpayment event, while recovery is the share expected from collection, security, or insolvency distributions apart from insurance.
Premium, compensation, and deductible
Copy the annual premium total, policy compensation rate, and confirmed deductible from the proposal or schedule. Do not substitute the public range for an actual term.
Buyer amount, aggregate, and review wait
The buyer-specific insurance amount is the maximum modeled payment for that buyer, not the same as insured receivables generated throughout the period. Enter an aggregate and post-due-date review period only when the documents confirm them.
Calculation sequence
For each buyer, the model first removes the user-entered recovery share from the current receivable to produce unrecovered loss on default.
It applies the policy compensation rate, subtracts one entered deductible, and caps the result at the buyer-specific insurance amount.
The deductible sequence is an explicit planning assumption and must be reconciled with the actual wording if the product uses a different base or order.
Loss and payout for one buyer default
L = receivable × (1 − recovery rate)
C = L × compensation rate
D = max(C − deductible, 0)
P = min(D, buyer-specific insurance amount)
retained loss = L − P
One-year expected net loss
uninsured expected loss = default probability × L
expected payout = default probability × P
insured expected net loss = allocated premium + probability × retained loss
expected economic benefit = expected payout − allocated premium
common break-even probability = annual premium ÷ ΣP
Annual premium is allocated by each buyer’s monthly credit-sales share so buyer-level expected net loss reconciles to the portfolio total.
If all monthly sales are zero, current receivable balances become the allocation weights and the simple implied premium rate is unavailable.
The policy aggregate is deliberately excluded from buyer-level expected values because default timing, dependence, and payment order are unknown; it is applied once in a separate all-buyers stress.
Step-by-step workflow
- Align the data date. Use balances, credit sales, actual payment timing, and a premium quote from a consistent review period.
- Copy policy terms first. Enter the annual premium, compensation rate, deductible, aggregate, and confirmed review wait, then check the document-confirmation box.
- Enter up to ten major buyers. Separate balance, monthly sales, payment term, internal default and recovery assumptions, and the buyer-specific insurance amount.
- Read the base expected-value comparison. Compare uninsured expected loss with insured net loss including premium, without treating either as a forecast.
- Stress the probabilities. Review one-half, base, and double probability cases to see whether the expected economic sign changes.
- Take the limit sheet to underwriting. Reconcile buyer gaps, quote-discussion starting limits, and aggregate stress with the ledger and current proposal.
Worked KRW example
The fictional default uses Buyer A with KRW 100,000,000 outstanding, Buyer B with KRW 60,000,000, and Buyer C with KRW 40,000,000.
The annual premium is KRW 6,000,000, the compensation rate is 80%, the deductible per buyer default is KRW 1,000,000, and the policy aggregate is KRW 90,000,000.
Buyer default probabilities are 4%, 2%, and 8%, while recovery assumptions are 20%, 30%, and 10%; these are teaching inputs, not credit opinions.
Worked buyer default loss and insurance-limit results in Korean won| Buyer | Unrecovered default loss | Payout after buyer limit | Buyer-limit gap | Quote-discussion limit |
|---|
| Buyer A | KRW 80,000,000 | KRW 60,000,000 | KRW 3,000,000 | KRW 70,000,000 |
| Buyer B | KRW 42,000,000 | KRW 30,000,000 | KRW 2,600,000 | KRW 40,000,000 |
| Buyer C | KRW 36,000,000 | KRW 25,000,000 | KRW 2,800,000 | KRW 30,000,000 |
Base expected values
Expected loss without insurance is KRW 6,920,000 and expected payout is KRW 5,000,000.
Adding the KRW 6,000,000 premium produces insured expected net loss of KRW 7,920,000 and expected economic benefit of negative KRW 1,000,000.
Break-even and implied rate
Buyer-level payout candidates total KRW 115,000,000, making the common expected-value break-even default probability about 5.2%.
Projected annual credit sales are KRW 1,200,000,000, so the simple implied quoted-premium rate is 0.5%.
All-buyer stress
Applying the KRW 90,000,000 aggregate to KRW 115,000,000 of buyer-level payout candidates creates a KRW 25,000,000 aggregate gap.
Total unrecovered loss is KRW 158,000,000 and net loss after aggregate payout plus premium is KRW 74,000,000.
Interpret probability, concentration, and quote-discussion limits
The lower scenario halves every buyer probability, while the higher scenario doubles it and caps each value at 100%.
In the worked example, expected economic benefit is negative KRW 3,500,000 in the lower case, negative KRW 1,000,000 at base, and positive KRW 4,000,000 in the higher case.
This sign change measures sensitivity to assumptions; it does not say which case will occur.
Concentration is a reported fact, not an invented safe grade
Buyer A represents 50.0% of the worked receivable balance and about 52.2% of the sum of buyer-specific insurance amounts.
The calculator does not label 30%, 50%, or another unsupported threshold as universally safe.
Management should compare the largest buyer’s retained loss with payroll, supplier payments, debt service, cash, unused facilities, and alternative sales channels.
The quote-discussion limit is only an arithmetic starting point
The model compares current balance with `monthly credit sales × payment days ÷ 30` and uses the larger amount as review exposure.
It then applies recovery, compensation, and the entered deductible before rounding upward to the selected discussion unit.
KODIT still considers buyer credit quality, transaction size, industry, average payment period, and underwriting, so the displayed amount is neither an approved limit nor a recommendation.
Practical decision scenarios
Negotiating open-account terms with a new major buyer
Model the receivable cycle before changing from cash payment to a 60-day term. Compare the retained loss, liquidity buffer, and a shorter term or deposit alongside insurance.
Reallocating buyer amounts at renewal
A flat premium can hide stale limits on shrinking buyers and gaps on growing buyers. Use current balances, projected sales, and discussion-limit gaps to prepare a reallocation request.
Reducing sales concentration
Use the largest receivable share and retained default loss to compare shorter terms, security, factoring, staged delivery, and customer diversification with a limit increase.
Preparing a cash-flow stress meeting
Compare all-buyer stress net loss with cash, unused credit facilities, monthly fixed costs, and covenant headroom. An aggregate gap may require funding and supply-stop rules in addition to insurance.
Documents and questions for a quote
- The analysis-date receivable ledger and the latest four quarterly buyer-level tax-invoice summaries
- Contractual due dates, actual receipt history, extended terms, disputed items, and receivables already overdue
- The distinction among insured receivables, buyer-specific insurance amounts, compensation rate, deductible, aggregate, and prior erosion
- Insured-event definitions for dishonor, closure, rehabilitation, bankruptcy, personal rehabilitation, and extended nonpayment
- Notification and claim deadlines, buyer-change restrictions, receivable-management duties, and recovery accounting
- Related-company, overseas-buyer, cash-sale, small-transaction, weak-credit, assigned, factored, or secured-receivable restrictions
- Discounts or local premium support, the amount actually payable, cancellation, amendment, and refund terms
Limits of the model
- Expected loss is probability multiplied by loss, without buyer correlation, economic cycles, sector contagion, or default order.
- Recovery compresses collection, security, insolvency distributions, cost, timing, and present value into one user-entered percentage.
- The aggregate appears only in the simultaneous-default stress. Actual claim sequence, restoration, related events, and prior payments require policy review.
- The implied premium rate omits underwriting ratio, discounts, product duration, tax, and product-specific bases.
- A negative expected economic benefit does not make liquidity protection, risk transfer, transaction continuity, or cascading-insolvency protection worthless.
- A positive expected economic benefit does not establish eligibility, admitted loss, payment timing, compliance, or claim recovery.
Frequently asked questions
Should I enter a rate from the published 0.1% to 5.0% range?＋
No. That range appears in KODIT public guidance for listed structures and is differentiated by credit quality, transaction ratio, payment period, product, and discounts. Enter the total annual premium from the current proposal.
Why does the fictional example use an 80% compensation rate?＋
It is only a teaching input inside the public 60% to 85% general guidance range. Replace it with the actual rate shown on the relevant proposal or policy, especially when a product uses a different structure.
Where does the default probability come from?＋
The calculator neither supplies nor predicts it. Use documented internal history, external credit work, sector evidence, and several conservative scenarios instead of presenting one number as a fact.
Are recovery rate and compensation rate the same?＋
No. Recovery is the user-assumed share collected from the original receivable after default, while compensation is the policy percentage applied to the remaining modeled loss. Mixing them can double-count loss reduction.
Does a probability below break-even mean the company should reject insurance?＋
It only means expected payout is below premium under the entered assumptions. The decision must separately value liquidity protection, risk tolerance, cascading-insolvency protection, transaction requirements, and financing covenants.
Will KODIT approve the quote-discussion starting limit?＋
Not necessarily. The number is generated from entered exposure, recovery, compensation, deductible, and rounding. KODIT performs its own buyer and policyholder underwriting.
Is a payment term above 180 days always ineligible?＋
The public enrollment page describes the 180-day restriction, but current product structure and transaction facts still require confirmation. The calculator warns without making an eligibility decision.
Why is the aggregate not used directly in expected loss?＋
Without default dependence, timing, and claim order, allocating a shared aggregate across probability-weighted buyers would imply unsupported precision. The model keeps buyer expected values and all-buyer aggregate stress separate.
Official sources and update rule
- Korean National Law Information Center, Small and Medium Enterprises Promotion Act: law ID 001476, MST 284099, Articles 61-2 and 61-7, current version effective July 1, 2026.
- Enforcement Decree of the Act: law ID 004972, MST 287507, Articles 52-2, 52-9, and 52-10, current version effective July 1, 2026.
- KODIT trade receivables insurance enrollment guide: receivable scope, buyer review, insurance amount, premium, and payment-period guidance.
- KODIT credit-insurance FAQ: buyer insurance amount, compensation-rate claim boundary, general 60% to 85% guidance, and the 180-day payment-period note.
The legal records and public guidance were checked on August 17, 2026.
Recheck them at every quote or renewal, and update the source constants, tests, Korean and English guides, and interpretation together if premium structure, compensation, deductible order, buyer amounts, aggregate, insured events, or notification duties change.
Replace the fictional values with the major-buyer ledger
Align receivable balances, recent credit sales, actual payment timing, and the current quote.
Then save the three probability cases and buyer-limit sheet as a discussion aid, while leaving underwriting, coverage, and claim decisions to the current policy and responsible institution.