Understanding Accounts Receivable Insurance

Get a Quote

What is Accounts Receivable Insurance?

Accounts receivable insurance, also known as trade credit insurance or debtor insurance, serves as a safeguard for businesses against losses due to non-payment of commercial trade debts. It is a form of coverage that kicks in when customers fail to honor their invoices within agreed terms, typically covering up to 90% of the outstanding amount. This insurance is vital in scenarios ranging from customer bankruptcy to political risks affecting international trade.

How Accounts Receivable Insurance Works:

The process begins with the insurer assessing the creditworthiness of a business’s customers and setting credit limits. If a customer fails to pay within the specified period, the business can file a claim. The insurer then compensates for the unpaid debt up to the set limit, although the customer’s obligation to pay remains. Notably, this insurance is instrumental in enhancing a company’s ability to make swift credit decisions and extend more competitive credit terms, boosting market competitiveness gaining a competitive advantage.

Examples of Accounts Receivable Claims:

• Customer Insolvency: If a customer declares bankruptcy and cannot fulfill their payment obligations, the insurance covers the owed amount.
• Political Risks: Situations where a customer is unable to pay due to geopolitical factors like sanctions or currency issues are also covered.
• Records Damage: In cases where accounts receivable records are destroyed in incidents like fires, the insurance covers costs related to records recovery, interest payments on related loans, and additional collection costs.

Why Businesses Should Consider Accounts Receivable Insurance:

1. Protection Against Bad Debts: The insurance shields businesses from losses due to non-payment, ensuring continuity and financial stability.
2. Facilitates Business Growth: By mitigating credit risk, it empowers businesses to offer more favorable credit terms, attracting more clients and fostering robust customer relationships.
3. Enhanced Financing Opportunities: Insured receivables are often perceived as more secure by lenders, potentially leading to better financing options.
4. Peace of Mind: It offers business owners reassurance that their cash flow is protected against unforeseen default risks.

Choosing the Right Accounts Receivable Insurance:

Selecting the ideal policy involves evaluating factors like the insurer’s reputation, coverage scope, policy costs, and the efficiency of their claim settlement process. It’s crucial to collaborate with an insurer that comprehensively understands your industry and possesses a solid track record in efficiently handling claims.

Protect your Business

Accounts receivable insurance is an invaluable asset for businesses aiming to fortify their balance sheet, secure cash flow and profits, and stimulate growth. While it entails costs, the protection and advantages it provides, from guarding against bad debts to enhancing financing avenues, significantly outweigh its expense. With a thorough understanding of this insurance type and the selection of an appropriate policy, businesses can confidently navigate the risks of customer non-payment.

Get a Quote