Accounts Receivable Insurance

Why you need accounts receivable insurance

Accounts receivable insurance protects your invoices against nonpayment risks. You need to offer competitive payment terms to your customers. But what happens if they go out of business, file bankruptcy, run short on cash, or don’t pay you for some other reason?Receivables insurance covers defaults resulting from customer insolvencies, business closures, ownership changes, cash flow problems, balance sheet issues, bad faith, fluctuating demand, natural disasters, general economic conditions, and other nonpayment risks. Also known as trade credit insurance, this coverage does more than mitigate your nonpayment risks. It’s a sales tool that can help you win more orders and it’s a financing tool that makes your company’s receivables more attractive to lenders. 

 
 
 
 
 

One policy covers multiple customers 

All of your company’s insurable sales can be covered under one accounts receivable insurance policy. A specific credit limit will be approved for each of your customers or, if you qualify for a discretionary limit, your policy will insure the credit decisions you make yourself based on your own experience. Alternatively you can apply for a receivables insurance policy covering only your largest customers. Or you can be even more selective, as long as the sales you want to insure represent a reasonable spread of risk. Receivables insurance policies covering just a single customer are less common, but may be feasible in some cases for a very creditworthy debtor. If you want to cover your company’s international receivables, Meridian offers export credit insurance as well . . . or you can insure both domestic and export sales under a global receivables insurance policy.

How much does receivables insurance cost?

Premium rates for accounts receivable insurance are based on the terms you extend, the spread of your buyer and industry risks, and your company’s previous credit and collections experience.The cost of receivables insurance is low, typically a small fraction of one percent of your covered sales volume. Whether or not you pass this incremental expense to your customers, the price of receivables insurance is insignificant compared to the additional business you can obtain by extending competitive credit terms while protecting your sales against nonpayment losses.