Accounts Receivable Insurance
Owning a business in California comes with its fair share of risks. As a business owner, you should minimize and plan for these exposures, such as accounting for the possibility of client non-payment. What if your client defaults but still owes you money? Your business could take a significant hit from not receiving payment. In this case, it would be helpful to have Accounts Receivable Insurance.
Accounts Receivable Insurance (or Trade Credit Insurance) counters this uncertainty by protecting your company against losses from being unable to collect payment from a customer. In addition, it can help accelerate your company’s sales growth and minimize risk associated with approaching new markets.
Accounts Receivable Stats
- According to the United States Census Bureau, 26% of invoices over 3 months old were written off as uncollectable. This increases to 70% at 6 months and 90% uncollectable at 12 months.¹
- Research conducted by Atradius in 2019 found that, of the companies interviewed in the United States, 74% reported late payments by B2B customers.²
Benefits of Accounts Receivable Insurance
- Protection from client default and loss
- Decrease bad debt reserves
- Freedom to grow sales with limited risks
- Better financing terms
Although each policy varies with how it is written, accounts receivable or trade credit insurance covers:
- Loss of records that are needed to be able to collect outstanding payment for work that has been completed (must be from a covered peril)
- Loss of income as a result of non-payment by customer for products or services
Clothing manufacturer T-Shirt Mavens (TSM) has been expanding their business and last February, signed a contract with the retailer LTR Apparel. Recently, T-Shirt Mavens fulfilled an order for LTR Apparel containing 250,000 units of product, but has yet to receive payment. LTR Apparel has not answered their numerous calls and invoices for non-payment. They finally visit the store in person; the retailer has been completely shut down without notice. Since the business defaulted, TSM is out $400,000.
Fortunately, T-Shirt Mavens had the foresight to invest in an Accounts Receivable policy upon starting their business and was reimbursed for the loss.
The J. Morey Company, Inc. can help you asses the risks to your business, and get your business the protection you need. Call today to let us help you find the best California accounts receivable insurance policy for your needs.