What Accounts Does Accounts Receivable Coverage Protect?
When businesses purchase accounts receivable coverage, they usually have the option to choose which accounts will be insured. Most accounts are eligible for insuring, but businesses generally only select the accounts receivables that they’re truly dependent upon. These tend to be a business’ larger client or customer accounts.
In some cases, policies will also automatically include coverage for smaller accounts. When provided, this additional coverage may be limited to on-premises records and have a relatively low limit.
How Much Protection Does Accounts Receivable Coverage Provide?
Businesses normally also can choose how well their chosen accounts receivable are insured. Insurance is typically provided in terms of percent due, and a business might choose to insure an account at 100, 80, 60 or some other percent. Since businesses don’t need to receive all of the money due in order to stay financially solvent, many businesses choose to insure accounts an amount that’s less than 100 percent.
When Does Accounts Receivable Coverage Pay on a Claim?
Accounts receivable policies generally pay on a covered claim, and a policy’s terms and conditions dictate what constitutes a covered claim. Some situations that a policy might cover are:
- A customer fails to pay their bill due to going out of business, filing for bankruptcy or changing ownership
- A customer fails to pay due to economic downturn or seasonal business cycle challenges
- Accounts receivable records are lost due to fire, severe weather, theft or other covered incident
Businesses should carefully review a policy’s terms before purchasing coverage so that they understand what claims that policy will cover.