An Introduction to Accounts Receivable (AR) Insurance in Kitchener
As a city as rich in manufacturing, tech, and finance as Kitchener is a lot of what makes this thriving economy work is the relationships forged between businesses and their clients. Whether a company is a business to business or business to consumer, just like in our personal lives, trust is key to those relationships.
As a supplier in Kitchener, you understand that your clients need to purchase and sell vast amounts of goods per order, sometimes over multiple orders, before they can turn those purchases into profits. If you’re a service provider, often your services are ongoing and are billed out on, for example, a monthly basis. And small business owners in Kitchener and the Tri-Cities know that sometimes you need to extend credit to loyal customers when they make a purchase as a gesture of faith and good-will. It’s for those reasons and more that accounts receivables are an established business practice.
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The Need for Accounts Receivable Insurance
Unfortunately, another established business practice is bad debt – the recognition that sometimes clients don’t pay or are late paying their accounts, leaving you to take the hit. Those losses could make your company no longer profitable, or worse, mean you have to close your own doors.
Reasons a debtor may default on an amount due include bankruptcy, insolvency, change of ownership, natural disaster, bad faith, or political or social unrest in the debtor’s country of operation.
Accounts receivable amounts are listed on a company’s balance sheet as a current asset, but once an account is past due, the uncollected debt shows as a loss that affects more than just your company’s balance sheet.
Some of the effects of having bad debt (besides the loss of revenue) include:
- Your company shows less profitability
- Lower credit rating and overall valuation
- Less attractive to potential investors and lenders
- Possible layoffs or bankruptcy
Accounts receivable insurance policies address these issues by offering an extra layer of protection from bad debt by insuring your company against those losses. An accounts receivable insurance policy will reimburse the insured up to 90% of the amount owed on an uncollected debt.
Besides providing businesses with cash they wouldn’t otherwise have, an accounts receivable insurance policy has the added benefits of providing the following:
- Peace of mind
- Higher liquidity, profitability and credit rating
- The confidence to target more customers and new markets
- Flexibility in offering clients more relaxed payment terms
- Easier access to financing (and better terms) for investment and/or reinvestment
How Much is Accounts Receivable Insurance in Kitchener?
In Kitchener, the cost of an accounts receivable policy depends on a number of factors including:
- The type of industry and business you’re in
- Financial history and previous losses
- Where you do business (which countries) and the type of clients you have
- Scope of coverage
- Deductible, retention, and coinsurance accepted by the insured
Contact an ALIGNED Advocate to get a quote based on your specific business for coverage that is customized to fit your unique needs.
Why Choose ALIGNED?
Our ALIGNED Advocates work hard to protect your business from bad debt and are risk-management experts who care about our clients’ success.