As a business owner, you have many risks to assess within your business operations. One of them is the possibility that a customer will default on money – or "receivables" – due to you. In some cases this could be only a minor setback. But if the receivable is substantial, a non-payment could threaten your business. Another threat to your receivables is a building fire that destroys records of work completed.
One solution to these concerns is accounts receivable insurance. This coverage can be especially helpful for businesses that want to pay small amounts incrementally to cover large risks that could threaten the stability of the company. An independent agent in the Trusted Choice® network can help you compare accounts receivable insurance quotes and evaluate this coverage for your needs. Find a local member agent for personal assistance today.
Depending on the insurance company, accounts receivable insurance can be designed to cover two types of risk:
In the latter case - when your accounting paperwork has been damaged or destroyed - your accounts receivable coverage may cover the costs to reconstruct those records so that you can proceed with collecting on the debts.
If your insurance policy provides coverage for reconstructing your lost paperwork, it will provide compensation for "covered perils." This means that your business insurance policy must explicitly cover the cause of loss. This may include:
Be sure to fully understand your policy and what it does and does not cover to avoid having your insurance claim denied at the time when you need to coverage to rebuild your business.
When you approach a credit insurance company to cover your risk of having an non-collectable receivable, they will want the following information:
The reason the insurer needs a list of all your receivables is to be sure that you are not "cherry picking" your accounts by trying to insure only the least credit worthy of your customers. Once this information is available, the carrier will examine the credit history of all the accounts you want to insure and choose whether to offer you the coverage.
This is a very specialized and complicated area of insurance. It is important that you work with a knowledgeable agent who can help you compare accounts receivable insurance quotes and coverage from several different insurance companies and find the right coverage for your needs and budget.
Most accounts receivable policies will involve two expenses in addition to your premium costs – a deductible and coinsurance. Deductibles and coinsurance are collectively referred to as "risk retention."
Here is how they typically work.
There is no flat rate in the account receivable insurance market. Every risk is priced separately. As a general rule, premiums will be not more than 1 percent of your average receivables.
An accounts receivable insurance policy is designed to remove as much of the ordinary risk of an unexpected bad debt as possible.
It is not a method for reassigning bad accounts to someone else. Nor is it a reason to grant credit to customers you have reason to believe are not fully credit-worthy.
The following are some important considerations:
Be sure you get the best coverage for your needs at the lowest cost by doing business with an experienced agent in the Trusted Choice network.
You will experience a number of benefits by establishing an accounts receivable insurance program. This coverage:
Accounts receivable insurance is a great tool for a small to mid-sized business. In most cases it will pay for itself after accounting for all the benefits.
There is no such thing as a standard accounts receivable insurance policy. Every insurance company has its own wording and provisions. Key elements in any policy are:
Before committing to a carrier and a specific accounts receivable insurance policy, you should ask for a sample policy and review it with your agent and your attorney. When you experience a loss is not the time to discover that your policy has a provision that works against you.
A Trusted Choice member agent can help you evaluate multiple accounts receivable insurance quotes and acquire the policy that is best for you.
For many businesses, the acquisition of accounts receivable insurance can provide much needed protection against an unexpected credit loss and enhance the company's borrowing power and credit worthiness. For others, the key ingredient is protection against the costs of reconstructing account records after a loss from fire or other covered event.
To find out whether this type of coverage is suitable for the needs of your enterprise, contact a member agent of the Trusted Choice network today.