Accounts Receivable Insurance Coverage: How it Works

Manage your accounts receivable insurance coverage online with Atradius Atrium. Our industry leading web-based system allows you to easily file insurance claims, track progress and modify your policy online. Accounts Receivable Insurance (also referred to as AR Insurance) is a simple and cost-effective form of insurance coverage that protects your business from nonpayment for your products or services. You transfer non-payment risk to the insurer, allowing you to focus on operations and growth without worrying about bad debts.

What is Accounts Receivable Insurance Coverage?

• The expertise and knowledge of underwriters working in your sector can further support your understanding of a potential market and underpin your decision-making processes.
• Extending credit to allow commercial customers to purchase your goods and services can boost business.
• For many businesses, accounts receivables constitute a significant part of their income and monthly cash flow.
• They assess your customers’ creditworthiness and financial stability using extensive databases, some monitoring over 85 million companies globally.
• Kirk Elken and Peter Seneca have over 35 years in the area of trade credit insurance.

You can think of invoice insurance as a flexible type of trade credit insurance. With invoice insurance you can select unearned revenue only the invoices that you want to insure, whereas with traditional trade credit insurance you generally buy insurance for your company’s entire accounts receivable. If you’re already established with one and satisfied with their services thus far, you may want to check into their receivable’s insurance too.

• By partnering with a credit insurance broker and tailoring coverage to your unique needs, you can safeguard your cash flow, enable sustainable growth, and secure your business against unexpected losses.
• Accounts receivable insurance works as a financial safety net designed specifically to shield your business from commercial debt non-payment.
• The insured has a strict obligation to provide initial notification to the insurer within a specified timeframe.
• After all, few things can more quickly sour a business relationship than inaccurate billing or other financial mistakes.
• With our expertise and commitment to excellence, we want you to explore the world of accounts receivable insurance coverage with us.

Tip # 2 – Payment Estimates and Up-front Payments

• Covering losses resulting from political events or economic changes.
• Don’t leave your financial security to chance; reach out to ARI Global today, and together, we can fortify your business’s financial foundation for a more resilient tomorrow.
• When a business agrees to invoice after goods or services are delivered, it’s technically offering credit to the receiving entity.
• For example, some policies may cover transactional non-payments, while others may focus on insuring key accounts or single buyers.
• After working together to elect the best policy at the most competitive price, we continue to work with and negotiate with the insurance carriers as your needs evolve.
• They’ll monitor the companies being extended trade credit and notify their client if signs of financial distress are detected.

Accounts receivable insurance reduces the impact of bad debt by covering unpaid invoices, ensuring that businesses do not suffer significant financial losses. There are different types of accounts receivable insurance policies, and the specific coverage can vary. For example, some policies may cover transactional non-payments, while others may focus on insuring key accounts or single buyers. Businesses can choose the type of coverage that best suits their needs, whether it’s protecting against non-payment from all customers or targeting specific high-risk customers. If a fire breaks out in a commercial property and destroys the accounting records, the company may lose track of critical business information.

More small business insurance products

You likely won’t need to insure all of your clients for 100% of their payment amount. You could choose to insure your largest clients for 60% or 80% of their accounts receivable amount and not worry about your smaller clients. Typically, you can expect to pay a premium that is a percentage of your annual accounts receivable. Some policies allow you to tailor coverage to suit your specific needs and risk levels.

Accounts receivable can make up 10-30% of a company’s total accounts receivable insurance assets. Companies with accounts receivable generally are considered to be in good shape. However, the lifeblood of any business is cash flow, and IOUs aren’t cash.

Currency Risk

Wholesalers, manufacturers, and distributors operating on trade credit terms use AR insurance to ensure consistent revenue streams and lower DSO (Days Foreign Currency Translation Sales Outstanding). It strengthens their balance sheets and supports growth strategies. “Atradius helped us to grow our business. We have provided better services, been able to increase activity with old customers, and start business with new ones.” Accounts receivable insurance is not the simplest insurance out there.

• It involves monitoring outstanding balances, initiating follow-up communications, and resolving discrepancies.
• Below are some recommended actions that you can take to strengthen your accounts receivable performance, letting you accomplish more with less work.
• Trade credit insurance is designed to cover short-term accounts receivables — ones typically paid in 12 months or less — from a business-to-business transaction.
• If you want coverage against a wider range of losses, you should purchase a standalone accounts receivable insurance policy.
• With invoice insurance you can select only the invoices that you want to insure, whereas with traditional trade credit insurance you generally buy insurance for your company’s entire accounts receivable.
• Within the context of accounts receivable, surprises are rarely positive.

Application and Underwriting Process

These companies assess credit risks and offer policies that ensure businesses remain protected against financial uncertainties arising from customer defaults. The cost usually depends on factors like the total credit sales, risk assessment of customers, and the business’s industry sector. Insurers analyse these factors to determine the premium, ensuring it aligns with the potential risks and the level of coverage required by the business.

How much does accounts receivable factoring cost?

Invoice finance is more about smoothing out your cash flow – you are advanced most of the value of an invoice (or all your invoices), in the full expectation that it will be paid. You can of course take out invoice insurance as a bolt-on to invoice finance. Bad debt occurs when a business is unable to collect payment for goods or services rendered. This can happen for various reasons, such as customer disputes, payment defaults, or fraud. Accounts receivable insurance helps mitigate the risk of bad debt by providing a safety net in case of non-payment. Policies are written on an annual basis and can cover risks that are commercial or political.