Accounts receivable insurance, also known as trade credit insurance, serves as a financial safeguard that protects businesses when customers fail to pay invoices due to insolvency, bankruptcy, or extended payment defaults. For finance leaders focused on managing risk, this protection offers peace of mind for one of your company's most substantial assets—your accounts receivable, which often make up about 40% of a company's total assets.
While European businesses have embraced accounts receivable insurance for decades, more and more North American finance teams are now recognizing its importance as part of a balanced risk strategy. However, insurance by itself only addresses part of the challenge. When paired with modern accounts receivable automation tools, your business can create a powerful risk management system that both protects against unavoidable losses and helps prevent many payment issues from occurring at all.
Read the blog → Modernizing AR: Key accounts receivable automation benefits
Understanding accounts receivable insurance
Accounts receivable insurance provides coverage against customer non-payment risks that often fall outside a company's direct control. Unlike property insurance or liability coverage that most businesses already maintain, AR insurance specifically protects your revenue stream and cash flow.
The protection offered by accounts receivable insurance comes in several forms:
- Whole turnover coverage: Protects all your accounts receivable against non-payment, covering either domestic sales, international sales, or both.
- Key accounts coverage: Focuses protection on your largest customers whose default would pose the greatest risk to your business.
- Single buyer coverage: Insures against potential default from one specific customer, ideal when most of your transactions involve a single major buyer.
- Transactional coverage: Protects against non-payment on individual transactions, suitable for businesses with infrequent sales or single customers.
It's important to distinguish accounts receivable insurance from accounts receivable factoring—a financing solution often confused with insurance. While factoring involves selling your receivables to a third party at a discount to receive immediate cash, AR insurance protects those receivables while they remain on your books. AR factoring may provide immediate liquidity but comes with higher costs and potential loss of customer relationships, as the factor takes over customer communication regarding payments.
AR insurance, by contrast, maintains your customer relationships while providing financial protection against default risks. The premiums for this protection typically range from a fraction of one percent to a few percentage points of insured sales, depending on your industry, customer base, and risk profile.
Benefits of accounts receivable insurance for finance teams
For finance teams managing cash flow and risk, accounts receivable insurance provides strategic advantages that extend well beyond basic protection against defaults:
Shield against catastrophic customer defaults
When significant customers fail to pay, your balance sheet remains protected from major disruptions. This stability is particularly valuable during economic downturns when customer insolvencies tend to rise.
Enhanced borrowing capacity and working capital access
Financial institutions view insured receivables as lower-risk assets, which often translates to access to larger credit lines, improved financing terms, lower borrowing costs, and greater flexibility in working capital management.
Confident business growth
With reduced risk exposure, your company can pursue opportunities that might otherwise seem too risky: extending credit to larger customers, entering new markets, offering more competitive payment terms, and expanding sales without proportionately increasing risk.
Valuable market intelligence
Many insurance providers offer insights on customer creditworthiness as part of their service, helping your team make more informed credit decisions based on data beyond what's typically available through standard credit reports.
These benefits align with Billtrust's core value propositions: controlling costs through better risk management, accelerating cash flow by reducing bad debt exposure, and improving customer satisfaction by enabling more flexible credit terms without compromising financial security.
Consider this example: For a business operating with a 5% profit margin, a $100,000 non-payment would require $2 million in new sales to recover the lost profit. This math illustrates why protecting your receivables is just as important as generating new business, and why accounts receivable insurance deserves consideration as a key component of your risk management strategy.
Beyond insurance: A comprehensive risk management approach
While accounts receivable insurance coverage provides valuable protection, relying solely on insurance creates several limitations:
- Cost considerations: Insurance premiums impact profitability, especially for high-risk industries or customers.
- Coverage gaps: Not all customers or situations qualify for coverage, leaving potential exposure.
- Reactive rather than preventive: Insurance addresses losses after they occur rather than preventing them.
- Administrative burden: Claims processing requires documentation and time.
This is where pairing insurance with AR automation creates a powerful combination. Modern accounts receivable automation platforms like Billtrust's solutions work alongside insurance to address the preventive side of risk management.
Automated credit management systems identify high-risk customers before default, using AI-powered analytics to detect concerning payment patterns. Digital invoicing ensures prompt delivery while collections software prioritizes accounts showing warning signs, automatically sending dunning letters that both encourage payment and document collection efforts.
What an accounts receivable insurance policy covers is only part of a complete risk strategy—automation complements insurance by helping prevent defaults before claims become necessary. This creates a robust risk management framework where insurance protects against unavoidable losses while automation reduces their frequency and severity.
Billtrust: Driving AR innovation and financial risk management
Billtrust leads the field of accounts receivable innovation, transforming financial operations through advanced automation solutions. For over two decades, we've helped organizations accelerate cash flow, control costs, and improve customer satisfaction via our unified AR platform.
Our solutions work alongside accounts receivable insurance strategies by addressing the preventive side of risk management:
- Proactive risk detection using AI and predictive analytics to identify potential payment issues.
- Automated collections workflows that reduce default rates before insurance claims become necessary.
- Integrated credit decisioning tools that complement insurance provider data.
- Real-time analytics dashboards for comprehensive risk visibility.
Processing over $1 trillion in invoice dollars annually for 2,400+ customers across more than 40 industries positions us as a trusted partner in financial risk management. We specialize in helping businesses create comprehensive risk mitigation strategies that combine the protective power of insurance with the preventive capabilities of automation.
Frequently Asked Questions
Most accounts receivable insurance policies exclude losses resulting from customer disputes over product quality, contractual disagreements, and political risks. Many policies also implement waiting periods before claims can be filed and may not cover receivables that were already past due when coverage began.
Insurance providers typically calculate losses based on the unpaid invoice amount minus any recoverable value,, such as repossessed goods or partial payments. Many policies cover between 80% and 95% of the eligible loss rather than the full amount to encourage proper credit management practices.
Billtrust's automation platform helps prevent defaults through early warning systems and streamlined collections processes before insurance claims become necessary. Our analytics identify high-risk customers early, enabling proactive management and more strategic insurance coverage decisions that maximize protection while controlling premium costs.