Accounts receivable insurance

If your company’s financial records are damaged or destroyed by a fire, flood, or other covered loss, impeding your ability to collect customer debts, accounts receivable insurance (A/R) provides a financial safety net.

Typically purchased as an endorsement to a commercial property policy, A/R insurance helps cover:

• Recovery costs, including IT services to recoup lost data and damaged records.
• Interest payments on loans to keep the business afloat during the recovery period.
• Collection costs that exceed the standard amount, which might include bookkeeping services to follow up with customers and send payment reminders.

Although some insurance carriers use the terms interchangeably, trade credit insurance and accounts receivable coverage are two different insurance products.

An A/R endorsement protects your accounts receivable records if they’re lost or damaged due to a covered event.

Trade credit coverage, also called debtor insurance, is a standalone policy that protects your business when a customer fails to pay an invoice due to:

• Insolvency or bankruptcy
• Protracted default, or extended nonpayment
• Certain political risks, typically for international sales

This coverage is popular with manufacturers, distributors, wholesalers, exporters, and companies that extend large amounts of unsecured credit to customers. As a risk management tool, it can help:

• Protect accounts receivable from customer non-payment
• Strengthen and stabilize cash flow
• Monitor customer financial standing and credit risk
• Improve access to bank and lender financing
• Promote better credit terms for customers

If you're wondering which type of insurance would best protect your small business, a licensed Insureon agent would be happy to help you determine the right coverage based on your unique needs.

There are many benefits of accounts receivable insurance, including peace of mind over non-payment issues.

For example, if a fire destroys your office, damaging paper records and digital record storage, accounts receivable insurance would pay for recovery efforts, such as:

• Data specialist services to recover records from damaged hard drives
• Temporary employees to collect customer payments
• Additional expenses are needed to restore financial records and invoices

However, should the damage from the fire force operations temporarily halt, you’d need a business interruption insurance policy to provide financial relief for day-to-day expenses and lost income.

Most accounts receivable insurance policies won’t cover:

• Contractual misunderstandings with customers.
• Fraudulent and dishonest acts, such as falsification of invoices.
• Clerical errors, inaccurate bookkeeping, and unreliable records.
• Customer disputes over non-payment because of defective or substandard goods or services.