Accounts receivable insurance protects your business from losses caused by a customer's non-payment for a variety of reasons. This type of coverage is important because the loss of accounts receivable records can cause a business to be unable to collect the money that customers owe. By understanding how accounts receivable insurance works, you can choose whether this product is right for your business. Bellow, the staff of ETG Capital, a provider of creative credit solutions to companies dealing with customers of high-risk, explain what Is Accounts Receivable Insurance and how it can protect your business.

You can benefit from accounts receivable insurance when:

· Your accounts receivable records get corrupted

· Import and export permits are unexpectedly canceled

According to the experts from ETG Capital, having accounts receivable insurance is part of a smart business plan because:

· It protects your money receivable and increases your cash flow

· Reduces debt and improve your balance sheet

· It takes advantage of your policy to get more cash and free up other assets

· It allows you to offer your clients better credit terms and payment options

· Allows you to receive larger orders and expand into new and emerging markets with confidence

Accounts receivable insurance protects a variety of situations that involve a company's accounts receivable records. First, it will cover a business for amounts that cannot be charged to customers because records are damaged or destroyed by a covered peril. Accounts receivable coverage will also cover the policyholder for interest charges on a loan obtained to offset uncollected amounts.

The coverage also provides reimbursement for collection costs that exceed normal collection costs. Most companies incur regular costs to collect money owed by clients, such as an accountant spending a few hours each month to remind clients that payments are due. Accounts receivable insurance covers expenses above these normal costs, which are the direct result of a loss. An example of such a cost is hiring a temporary worker to help with collection activities.

Accounts receivable insurance will also cover the costs of re-establishing your accounts receivable records, such as the costs of hiring an information technology consultant who specializes in data loss recovery.

Insurers can include accounts receivable insurance as part of an "extended coverage" endorsement attached to a property policy. However, this insurance may not be the same as a separate accounts receivable endorsement because it may be subject to exclusions that apply to buildings and personal property, explain from ETG Capital, whose company's line of business includes providing various business services.

The precise way losses are calculated can vary between insurers, but most follow the same general principles. First, an insurer calculates the total accounts receivable for the twelve months prior to the loss. She then divides this sum by twelve, which gives a monthly average of accounts receivable. For example, suppose a company's accounts receivable records are destroyed in a fire on January 1, 2017. The insurer will add accounts receivable for the period December 31, 2015 to December 31, 2016, and Then divide that number by 12. If your annual accounts receivable is $ 1 million, the monthly average is $ 83,333.

Since sales can be cyclical during a given year, the insurer will consider whether normal fluctuations in a business caused accounts receivable to be higher or lower than the monthly average on the date of loss. considering the time of the loss, the insurer will increase or decrease the monthly average.