Key Takeaways: Accounts Receivable Insurance
- What it covers: Protects your business against financial loss when customers fail to pay invoices — also called trade credit insurance or credit risk insurance
- Who needs it: Any B2B company that extends payment terms (net 30, 60, 90) to customers, especially those with concentrated customer risk where one default could threaten cash flow
- Coverage scope: Pays 75-95% of the invoice value when a customer defaults due to insolvency, bankruptcy, protracted default (180+ days past due), or political risk (for international receivables)
- Typical cost: 0.15%-0.50% of insured revenue ($1,500-$5,000 per $1M in covered receivables), depending on industry, customer creditworthiness, and payment terms
- Secondary benefit: Many lenders and factors will advance more against insured receivables, improving your borrowing capacity and working capital
Accounts receivable insurance — also called trade credit insurance — protects your business against losses when customers don’t pay their invoices. If a customer goes bankrupt, becomes insolvent, or simply refuses to pay after 180+ days, the policy reimburses you for 75-95% of the outstanding invoice amount. For businesses that extend payment terms to other businesses (B2B), this coverage converts your biggest financial risk — customer non-payment — into a manageable, insured exposure.
The need is straightforward: if you sell $500,000 worth of products to a distributor on net-60 terms and that distributor files Chapter 11 before paying, you’ve lost $500,000 in revenue with products already shipped. Accounts receivable insurance limits that loss to 5-25% of the invoice (your retention/deductible) instead of 100%.
How Accounts Receivable Insurance Works
- You purchase a policy covering your outstanding receivables. The insurer evaluates your customer portfolio, sets credit limits on individual buyers, and issues a policy covering insolvency and protracted default.
- You continue selling on credit terms as normal. The insurer monitors your customers’ financial health and alerts you to deteriorating credit situations before they become losses.
- If a customer defaults (bankruptcy, insolvency, or non-payment beyond the policy’s waiting period, typically 90-180 days past due), you file a claim.
- The insurer pays 75-95% of the covered invoice. Your retention is the remaining 5-25%. The insurer may then pursue recovery against the debtor through their own collections or subrogation process.
What Does Accounts Receivable Insurance Cover?
| Risk Type | What It Covers | Example |
|---|---|---|
| Commercial risk (insolvency) | Customer files bankruptcy or becomes insolvent | Your largest customer declares Chapter 7 owing you $250K |
| Protracted default | Customer fails to pay beyond the waiting period | Invoice is 180+ days past due with no payment or dispute resolution |
| Political risk | Government action prevents payment (international) | Currency controls, import restrictions, or war prevents payment from foreign buyer |
| Pre-shipment risk (optional) | Customer cancels order after you’ve committed resources | Manufacturer cancels a custom order after you’ve purchased raw materials |
Who Needs Accounts Receivable Insurance?
- Manufacturers and distributors selling on net terms to retailers, wholesalers, or other businesses
- Companies with customer concentration: If your top 5 customers represent 40%+ of revenue, one default could be catastrophic
- Exporters: International receivables carry political risk (currency controls, sanctions, import restrictions) on top of commercial credit risk
- Fast-growing companies: Rapid growth means extending credit to new, unproven customers. Insurance provides a safety net while you build the relationship.
- Businesses seeking financing: Insured receivables are more valuable as collateral. Lenders and factors will advance 85-90% against insured AR vs 70-80% against uninsured.
How Much Does Accounts Receivable Insurance Cost?
| Factor | Impact on Premium |
|---|---|
| Industry | Higher risk industries (construction, retail, oil & gas) pay more |
| Customer creditworthiness | Portfolios with investment-grade buyers cost less |
| Payment terms | Longer terms (net 90) cost more than shorter (net 30) |
| Geographic spread | International receivables cost more than domestic |
| Loss history | Prior bad debt losses increase premiums |
| Coverage percentage | 90-95% indemnity costs more than 75-80% |
| Typical range | 0.15%-0.50% of insured revenue ($1,500-$5,000 per $1M) |
Major Trade Credit Insurance Carriers
| Carrier | Specialty |
|---|---|
| Euler Hermes (Allianz Trade) | Largest global trade credit insurer. Strong in manufacturing and export. |
| Coface | Strong international coverage, especially Europe and Asia. |
| Atradius | Major global carrier with strong North American presence. |
| QBE | Specialty lines including trade credit for mid-market companies. |
| Great American | Domestic trade credit with flexible policy structures. |
| Zurich | Large account trade credit and political risk coverage. |
Trade Credit and Accounts Receivable Insurance
Hotaling Insurance Services places accounts receivable and trade credit insurance for mid-market manufacturers, distributors, and exporters. We work with Euler Hermes, Coface, Atradius, and specialty credit markets to structure coverage that protects your cash flow and improves your borrowing capacity.
Request a Trade Credit QuoteFrequently Asked Questions
What is accounts receivable insurance?+
A policy that pays you when customers fail to pay their invoices due to insolvency, bankruptcy, or protracted non-payment. Typically covers 75-95% of the invoice value after a waiting period.
How much does AR insurance cost?+
Typically 0.15%-0.50% of insured revenue — about $1,500-$5,000 per $1 million in covered receivables. Cost depends on customer credit quality, industry, payment terms, and loss history.
Does accounts receivable insurance cover all customers?+
The insurer sets individual credit limits for each buyer based on their creditworthiness. You’re covered up to that limit per customer. New or high-risk customers may get lower limits or be excluded until they establish a payment track record.
Can AR insurance help me get better financing terms?+
Yes. Insured receivables are more valuable as collateral. Banks and factors typically advance 85-90% against insured AR versus 70-80% against uninsured receivables, improving your working capital.
What’s the difference between AR insurance and factoring?+
Factoring sells your invoices to a third party at a discount for immediate cash. AR insurance keeps you in control of your receivables and customer relationships — the insurer only pays if a customer defaults. They serve different purposes and can be used together.
Disclaimer: This article is for informational purposes only and does not constitute insurance, legal, or financial advice. Coverage terms, availability, and pricing vary by carrier and jurisdiction. Consult with a licensed insurance professional for recommendations specific to your situation.