An account receivable insurance is a coverage that shields an entrepreneur or organization against financial loss due to non-payment of an existing debt. Unfortunately, some creditors may fail to pay this debt even after receiving goods from a distributor.
4 Circumstances Under Which an Account Receivable Insurance Applies
Destroyed records
Entrepreneurs can contact the insurers when their creditors fail to repay the debt and tamper with the records. The insurance company will establish the value of the goods the creditor took and failed to pay as agreed.
Collection costs
Secondly, a businessperson may incur extra expenses when recovering the amount the creditors owe them. Fortunately, a receivable insurance can bail you out if a creditor fails to honor your agreement, compelling you to collect the debt through another way.
Largest customers
A businessperson can get compensation when the largest customers fail to pay for goods released to them. The insurer understands that non-payment by such customers can lead to business collapse.
Commercial debt
You can claim compensation for all the customers who fail to honor this debt to shield your business against collapse. Interestingly, this policy can apply to local and international sales, depending on the terms of your insurance.
4 Benefits of Getting an Account Receivable Insurance in 2024
Here are well-researched advantages of applying for this insurance cover.
Free business advice
An account receivable insurance company can help to single out creditworthy customers to lower the risk of incurring losses. Similarly, the insurer’s employees can forewarn you about undeserving customers to avoid losing your goods.
More sales
Secondly, this insurance policy emboldens entrepreneurs to sell more goods on credit to trustworthy retailers. The insurance company does not mind compensating you, especially if a customer they approved lets you down.
Helps one beat competition
Many entrepreneurs offer restrictive terms, particularly to retailers who prefer buying goods on credit. Therefore, an insured businessperson can proffer better trade terms, enabling them to attract more potential retailers and final customers.
Encourages businesspeople to sell goods to international customers
Entrepreneurs fear trading with international clients because they might fail to pay the debt. Fortunately, you can claim compensation due to non-payment of a debt by such a customer(s).
Summary
Technically, some customers may request a distributor to sell them products on credit and promise to repay later. Unfortunately, not all retailers will keep their word and thus you should get an account receivable insurance for your business’ sake.