The Benefits Of Having Account Receivables InsuranceAccount receivables insurance, also called credit insurance, is a policy that protects a company's interests in its debtor balances. The insurance is designed to protect suppliers against a number of commercial risks that could impact the debtor's ability to pay. The cover will usually include payment in the event of client bankruptcy, the cancellation of a trade permit, simply failing to pay, refusal of delivery of goods or cancellation of contracts as well as force majeur. An account receivable policy may include all of a business' debtor accounts or it may be applied to key accounts only to ameliorate the risk of having one large customer ceasing to trade.
All businesses need to have a write off receivable policy and an uncollectible receivable policy in place. Such a policy would give guidance on how an account receivable is to be treated in the event that it is not paid. A write off receivable policy will include provisions regarding the amount of the debt and the length of time it will be allowed to remain outstanding before being written off. It may be that a business decides to write off all debts under $1000 if they have been outstanding for 2 years or more. Other companies may choose to write off debts of less than $100 if they remain unpaid for 3 months. The different trading circumstances of individual companies will dictate the contents of their individual account receivable policy. An uncollectible receivable policy will detail all collection efforts that must be made before the debt can be declared uncollectible. These may include letters, telephone calls, collector visits and legal action.It is when such a non-payment policy is activated that a claim under the account receivables insurance may be submitted. West Asset Management, one of the companies offering account receivables insurance, will work closely with clients to produce an account receivable policy that is fair and reasonable bearing mind all trading factors. It is not surprising that the insurance company will make the policy offered dependent on credit checks being run on all customers, national and international, but the good thing is that they also have the facilities and contacts to make such checks. Of course, it is in their interests to help with the credit checking process as it minimizes their risk.Businesses in all market sectors can apply for account receivables insurance cover and policies can be tailored to suit the particular needs of the company. The customer base does not need to consist of large blue chip organizations. Most insurance companies will offer cover for all types of debtor accounts, including individuals, provided the credit checking is done before goods or services are provided. Credit checking may include trade references from third parties or a trading history with the company applying for the insurance cover. This will be in addition to searches on the usual credit databases. Account receivables insurance is designed to take the risk out of offering credit to customers but it does come at a cost. Each individual company will need to weigh up the advantages and disadvantages according to their individual circumstances. |