What Is Accounts Receivable Insurance?

Accounts receivable insurance is mainly to cover losses caused by customers' non-payment (including long-term arrears and insolvency).

Accounts receivable insurance

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Accounts receivable insurance is mainly to cover losses caused by customers' non-payment (including long-term arrears and insolvency).

After insuring this type of insurance, companies can not only pass on the major costs of bad debts to third parties (insurers) to maintain financial stability, but also gain faster and clearer understanding of customers' conditions through insurance companies and increase solvency Customer sales. At the same time, if an enterprise transfers the beneficiary rights of insurance compensation to a bank, it will be easier to obtain bank financing support.

When carrying out credit insurance, enterprises should also pay attention to the fact that many accounts receivable insurance is limited to abnormal losses, and insurance companies will also limit the insurance finance to a certain range, so the enterprise will also bear some bad debt losses. However, this method can still pass the risk of significant loss that the company cannot predict to the insurance company, and minimize the loss rate.

In general, accounts receivable insurance can help companies prevent credit risks, provide financing support, and expand corporate sales. However, the actual situation of each enterprise is different, so the advantages of this type of insurance they use are also different. Next, let's look at a few examples:

I. Company A has a large number of accounts receivable, and the company's credit sales ratio has accounted for more than 80% of sales. In order to avoid excessive loss of bad debts, Company A can choose to buy insurance at this time. Insurance companies help companies to transfer a large part of their credit risk. At the same time, the intervention of insurance companies can also help companies strengthen the maintenance of customer credit and have a positive effect on the collection of payments.

II. Company B also has a large amount of accounts receivable on the same account. At the same time, its own liquidity is insufficient, and he must obtain financial support through the bank. However, due to the current tightening of monetary conditions, due to the relatively small scale of operation of Company B, it is difficult to obtain financing from banks at once. At this time, Company B can also choose accounts receivable insurance, and transfer the proceeds of insurance compensation to the bank, so that the rights and interests of the bank can be protected to a certain extent, and it is easier for the company to obtain financing support for accounts receivable.