Joe West Company

Accounts Receivable Insurance

Accounts Receivable Insurance

Tim Driskill
Bob Turner
Jeff Cleveland
Mike Robinson
Harold Craig
Barry Tims
Bill Johnson
Guy Griggs

The overwhelming majority of businesses, large and small, would not dream of operating without insurance to protect their property or their liability exposures. When it comes to one of their biggest assets, their accounts receivable, most do little or nothing to protect that asset, but they should! For many businesses, accounts receivables represent from forty to seventy percent of their assets, yet few companies can compete without extending credit.

After the October 17, 2005 implementation of the Federal Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), there was a brief drop in bankruptcy filings. Since that initial drop, filings have increased every year. The Administrative Office of the U.S. Courts reported that during the twelve month period ending March 31, 2008, 30,741 business bankruptcies were filed, up forty percent from the reporting year ending March 31, 2007, and that is just for the Federal Courts. Over the last decade, dozens of very large “brand name” companies, along with hundreds of others, have filed for bankruptcy. And we are all aware of the U.S. economic situation since March 31, 2008.

What can a business do to protect its accounts receivable? The simple answer is to be careful who you extend credit to and how much credit you extend. If only it were that simple – ask the dental manufacturers across the country what happened when one of the largest distributors in their industry,   , went bankrupt without warning. We can tell you that a lot of manufacturers lost a whole lot of money.

A business can also ask for credit information and check bank references, but that information can become outdated quickly. It is also possible to go online: Google PACER and you can get the U.S. court system’s information source where, for a small fee, you can access the bankruptcy reports by county. The problem is, of course, that this is historical data. And what if you want to do (or are already doing) business overseas? How can you determine the financial security of your creditor in a foreign country?

Any company extending short term credit (less than 365 days), should consider Credit Insurance. Manufacturers, distributors, and wholesalers with annual domestic and/or export sales should definitely consider this coverage. It is available from a small handful of insurance companies that specialize in both domestic and international Credit Insurance. The benefits for the business are:

1. Better credit management and risk management,
2. Protecting cash flow and profits from bad debt losses,
3. Reduction of bad debt reserves for a stronger balance sheet,
4. Better financing terms and increased working capital,
5. Increased sales with safer credit risk, and
6. Ability to enter new markets with less risk.

Microsoft and Hewlett Packard are two companies who have led the way in using traditional risk management tools in all aspects of their operations. Are you applying risk management to your accounts receivables? Have you seriously considered Credit Insurance?

If you would like one of our experts to review your current coverages with you to assess your current risk level and to see if we can offer a more comprehensive and cost effective policy, contact us here.