Wonder exactly how accounts receivable insurance coverage works? Read this.
Coverage insights. Owners of Canadian businesses of all sizes, geographies and industries often ask us questions. That’s why we regularly post insurance information like this on our site. When it comes to understanding commercial insurance, a question we often are asked is about accounts receivable coverage. What it is and how it works, specifically.
Effectively it’s insurance against bad debt and is coverage against one of your most valuable assets…your receivables.
So what exactly does AR coverage…cover?
Losses happen. Accounts receivable insurance coverage is designed to cover losses due to a wide range of commercial and political risks that could result in bad debt. It could mean the difference between profit and loss or even bankruptcy for your business.
The wide-ranging risks that accounts receivable insurance covers includes:
- Non-payment or bankruptcy of one of your clients
- Payment delays due to blocked fundxs or problems with the transfer
- Events and/or hostilities in a customer’s country that make payment difficult
- Issues with currency conversion or transfer
- Depending on the scope of coverage, it can also include contract cancellation due to your customer’s refusal to accept the goods and cancellation of export or import permits
Claims happen. Here’s a real Canadian accounts receivable insurance claim.
A Canadian business was expecting to make a $50,000 profit on roughly $1 million of annual sales. However, one larger customer owing $60,000 didn’t pay due to bankruptcy wiping out the profitability of the business.
Thankfully, the business had purchased accounts receivable insurance coverage through an insurance broker like ALIGNED Insurance, from one of Canada’s leading insurers called EDC and they received $60,000 and remained profitable.