How Account Receivables Insurance Can Protect SMBs
By David Waldorf
As geopolitical and economic conditions evolve, the global trade environment remains in flux, creating unique challenges for small and medium-sized businesses (SMBs). As a result, independent insurance agents need new tools to help their clients protect their assets and ensure long-term sustainability and success. Enter account receivables insurance.
Historically, large corporations dominated the use of receivables insurance. But today, SMBs can access single and multi-buyer policies designed to fit their needs. This financial safety net can make the difference between survival and insolvency after a significant customer default.
More From IA Magazine
With recently enacted tariffs and shifting trade policies increasing supply-chains costs, businesses are finding it harder to maintain stable profit margins and revenue certainty. When costs rise due to higher supplier and manufacturer pricing, SMBs often face a difficult choice: absorb the increased costs and risk lower profitability or pass them on to customers.
For SMBs, the loss of any single key customer can significantly impact their ability to sustain operations, invest in growth and weather financial setbacks. Shrinking margins mean less flexibility to cover debts, maintain inventory and reinvest in critical business improvements.
SMBs also often find it difficult to recover from setbacks. To recover from sudden credit losses due to unpaid invoices, many organizations would need to achieve an often significant growth in revenue to replace the loss of profit. This daunting, if not impossible, task can quickly destabilize a business, forcing cutbacks, operational restructuring or even closure.
What Is Account Receivables Insurance?
Accounts receivables insurance offers SMBs a critical tool to protect their cash flow and provides financial stability while pricing pressures are difficult to control. This coverage ensures businesses can recover outstanding debts and maintain liquidity, even when a key customer defaults.
While accounts receivables insurance can protect a SMB from trade uncertainty, it can also be used as a strategic asset to unlock capital and strengthen the business’s borrowing base. For many of these organizations, securing capital to invest, grow and sustain operations is a challenge. Many business owners assume they lack the collateral necessary to qualify for financing, limiting their ability to access funds when they need them most. But what if they could leverage one of their most valuable assets—their accounts receivables—to strengthen their borrowing base?
Receivables are more than just outstanding invoices. They represent future cash flow. When insured, businesses can typically increase their borrowing base to 90% of their receivables, significantly improving their ability to secure financing. This transforms receivables from a passive asset into an active financial tool, helping businesses access capital with greater flexibility.
Accounts receivables insurance has a notably positive return on investment. It can be used to negotiate better loan terms, secure working capital and maintain liquidity during periods of uncertainty. Additionally, SMBs can reduce the amount of cash tied up in their bad debt reserves, freeing up funds for reinvestment in growth, technology and other operational improvements.
As an independent agent, it is important to view accounts receivable no differently than inventory or buildings when assessing risk. All three are assets and are at risk of loss—and all three can also be used as collateral to attract and improve working capital finance.
This insurance type allows businesses to tailor protection to their specific needs, creating flexibility that ensures risks are managed based on the exposure of that particular business. For instance, it is no longer a requirement that the business insures its entire portfolio. Some underwriters will insure entire portfolios, limited portfolios, single customers and even single invoices. This added selectivity brings both cost and availability benefits to SMBs. These companies can get customized coverage in the same way as Fortune 1,000 companies.
Businesses that proactively mitigate risks across their receivables will appreciate the flexibility to apply coverage where it makes the most sense. For SMBs that have been operating for three or more years with a history of receivables, the option to secure non-cancellable buyer limits can provide greater peace of mind.
David Waldorf is president & chief commercial officer at FinSurance.
