Should Your Company Buy Receivables Insurance?

When it comes to looking at business insurance, most companies concentrate on the insurance of their physical assets. While this is important, there is one asset far more important; your company’s unpaid customer invoices. Is there a way to insure them? Of course there is, and it’s called receivables insurance, and given the state of our economy, it’s likely the most important insurance your company could ever buy. What is receivables insurance? More importantly, how can buying receivables insurance protect your business?

Receivables Insurance Insures Your Customer’s Unpaid Balances and Invoices 

As a business, I am sure you’ve come across more than one customer bankruptcy. Even if your business is a new one, customer bankruptcies just come with the territory. In the worst recession since the Great Depression, I am convinced your company has been hit hard with a customer who couldn’t pay their invoices.

 

It’s not easy to lose all that gross profit, and revenue. You’ve worked hard to secure this business, and now all that hard work is gone. So, how does receivables insurance help?

   

• Receivables Insurance protects anywhere from 80% to 90% of the outstanding balances owing by your customers, or better put, your customer’s unpaid invoices.  
• Costs of receivables insurance depends upon the coverage, but it’s typically anywhere from 1% to 2% of the invoice value.  
• In the event of a customer bankruptcy, your customer’s unpaid invoices are covered by this insurance. 

Does Your Company Sell to High Risk Customer and Overseas Accounts?

   

If your business sells to overseas customers, or high risk accounts, then you either have to force them to prepay, or buy receivables insurance. Prepaying is always good to improve cash flow, and eliminate the daily cost of money, but the best is to buy receivables insurance. By having receivables insurance, your business can protect your invoices, and grant those customers terms.

 

It’s not easy to force all your customers to prepay when your competition is giving credit, so investigate the benefits of insuring your customer’s unpaid invoices. Here is a post that has a table showing how receivables insurance can protect your business, and allow you to recoup losses not covered by your insurance. Best Business Practices: Insuring Customer Receivables

 

 

The above video explains the differences between financing with a bank and financing through an asset-based solution like receivables factoring.