Escrow vs Trade Credit Insurance: Which Protects You Better?

When sending large payments to suppliers in Mexico, companies often look for extra protection. Two common options are escrow-style payment structures and trade credit insurance. Both aim to reduce risk, but they work very differently. Knowing the strengths and limits of each can help you choose the right approach for your business.

What is Trade Credit Insurance?

Trade credit insurance protects sellers if a buyer fails to pay an invoice. Insurers cover risks like insolvency, protracted default, or political events that prevent payment.

• Strengths:

  • Provides a safety net for sellers, ensuring they still get paid if the buyer defaults.

  • Can improve financing terms, since insured receivables are seen as lower risk by banks.

• Limitations:

  • Typically protects the seller, not the buyer.

  • Claims can take months to process, leaving cash flow gaps.

  • Premiums add ongoing costs, often a percentage of revenue.

What is Escrow-Style Protection?

Escrow-style structures focus on buyers. Funds are locked in a secure account and only released once agreed conditions are met—like proof of delivery or valid customs documents.

• Strengths:

  • Protects the buyer from paying before goods are delivered.

  • Reduces fraud risk in advance-payment situations.

  • Clear, objective release conditions build trust on both sides.

• Limitations:

  • Does not cover every scenario (for example, supplier insolvency mid-production).

  • Requires both parties to agree on verification steps.

Which One is Better?

It depends on your role in the transaction.

• Buyers benefit most from escrow-style structures, since their main risk is paying for goods that never arrive or arrive off-spec.

• Sellers benefit most from trade credit insurance, since their main risk is shipping goods and not getting paid.

In practice, some companies use both. For example, a buyer may pay through an escrow-like service while the seller insures receivables from other customers.

The Bottom Line

Both tools have their place, but they solve different problems. Escrow-style payments protect buyers at the point of transaction, while trade credit insurance protects sellers after delivery.

Next step: Boonie gives buyers escrow-level safety by locking funds until delivery is verified, then releasing automatically. It makes cross-border payments feel secure without the overhead of insurance policies.