Accounts Receivable Insurance

If your business relies on accounts receivables, and one or more of your customers can’t pay, this coverage could save your business.

Expert: Andrew Flueckiger Written by Andrew Flueckiger
Expert: Andrew Flueckiger
Written by Andrew Flueckiger

Andrew Flueckiger in an insurance writer for He's a licensed insurance agent who has earned his CIC designation and has written extensive insurance articles for many publications.

Accounts Receivable Insurance

If your business relies on accounts receivables for a large portion of your income or sales, what would happen if your largest customers couldn’t pay on time? Or if your business suffered a property loss and your accounts receivables records were destroyed? Putting insurance on your accounts receivable may be your answer and it can make the difference between continuing positive cash flow or having to take out a loan just to stay afloat. 

Accounts receivable insurance could play an important part in your business insurance and risk management program. Employing the professional services and advice of a trusted independent insurance agent can make the buying process smooth and worthwhile, and can ensure that your business has the exact coverage that you need.  

What Is Accounts Receivable Insurance?

Accounts receivable insurance provides insurance coverage specifically for cash or payments that your business is owed by customers. Accounts receivables are simply what other businesses owe your business, in contrast to accounts current which is what your business owes others. 

For many businesses, accounts receivables constitute a significant part of their income and monthly cash flow. Businesses often operate with the full expectation that they will be paid in the next month or two. 

But what if your largest customer or customers had a claim of their own and couldn’t pay you for goods or services you already sold them? Many businesses wouldn’t have the cash flow on hand to be able to continue to operate if those accounts receivable weren’t paid on time. 

Accounts receivable insurance solves that problem and can make the difference between having enough cash to continue operating or being forced to either take out a loan or go out of business. 

How Does Accounts Receivable Insurance Work? 

Accounts receivable insurance normally covers you for one or both of the following perils, or risks:

  • A customer doesn’t pay you for goods or services rendered to them, due to the customer going out of business, changing ownership, or going bankrupt. 
  • Your accounts receivables records are destroyed due to a covered loss, such as fire, theft, or severe weather.

Some accounts receivables insurance policies will also cover customers failing to pay for economic downturn reasons or seasonal business cycles. You may even be able to insure international clients and have geopolitical events covered in your policy.

When you first apply for the accounts receivable insurance policy, you’ll get to choose which customers you’d like to insure against. But you’ll have to submit all of your accounts receivable records to the insurance company so that they can have a clear idea of what your business is doing and to prevent fraudulent claims. 

Some of the information you’ll need to submit to the company includes:

  • A history of your past bad debts and write-offs
  • A list of your outstanding accounts receivables
  • A complete list of your accounts receivables customers
  • Which customers you’d like to insure against, along with their payment history, outstanding balance, and how much you’d like to insure on each customer

Even though you’ll need to submit records of every customer, you can pick and choose which customers you actually want to insure. You’ll also be able to choose how long to wait on a payment before being able to submit a claim, similar to a waiting period or a time deductible. 

When constructing your policy, you can also decide what percentage of the payment you’d like to insure. The higher the percentage you insure, the larger your claim payment will be, but you’ll also have to pay a higher premium for higher amounts of coverage.  

Accounts receivable insurance is fairly broad coverage if you have a loss. For example, if you lost your accounts receivables records, this coverage will pay for the cost to replace those records, including the cost of hiring a firm that specializes in data recovery and in collections. It will also cover interest charges on any loans taken out to cover the lost income from uncollected accounts receivables. 

Things to Consider with Accounts Receivable Insurance

In order to determine how much coverage you’ll need on each customer, you’ll have to do some figuring. Would your business actually need 100% of a clients’ payment in order to stay afloat if they failed to pay? 

You likely won’t need to insure all of your clients for 100% of their payment amount. You could choose to insure your largest clients for 60% or 80% of their accounts receivable amount and not worry about your smaller clients. 

In general, the cost of accounts receivable insurance is roughly 1% of your annual accounts receivable amount, though this could be higher for some businesses. The exact rates are determined by each carrier and are based on factors such as:

  • The industry your business works in
  • The payment history of your accounts receivables clients
  • The amount that you’re insuring for
  • Your deductibles, both in time and in money

Some commercial insurance policies will also automatically include smaller amounts of accounts receivable insurance, though the amounts typically range between $5,000 and $50,000 and may only be limited to on-premises records. 


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The Benefits of Accounts Receivable Insurance

Accounts receivable insurance may be critically important for businesses that:

  • Have 40% or more of their cash flow come from accounts receivables
  • Have a small number of clients who owe large sums of money
  • Deal with many international clients

For these businesses, their accounts receivables are too valuable to lose and should be insured. Accounts receivable insurance can also help businesses expand into new markets and take on more risks than they might otherwise be willing to take, for example due to geopolitical situations. 

For other businesses that have a smaller amount of money in accounts receivables, the smaller amounts that are oftentimes automatically included in commercial package policies will likely be enough coverage. 

Each insurance company pays out accounts receivable claims with their own methods, but most use a yearly or monthly average to determine your claim amount, based on the percentage that you have insured. That is another reason that the insurance company needs to have all of your accounts receivables records, so that it can properly determine what your claim payment will be. 

The Best Way to Find Accounts Receivable Insurance

Accounts receivable insurance is not the simplest insurance out there. It can be a complicated coverage that requires the help of an insurance expert and a good insurance company. Accounts receivable insurance can be critically important to your business and can be the difference between your business staying afloat or going under. 

By working with a trusted independent insurance agent in your area, you’re ensuring that you’ll receive the professional advice and help that your business needs to secure the right type of accounts receivable insurance. Your agent will work with you to determine which type and how much accounts receivable insurance you need. They will also be able to recommend the appropriate insurance companies to work with, who can also make the process as smooth as possible, allowing you to focus your time and effort into growing your business and leaving the insurance aspect to the professionals. 

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