# Accounts Receivable Insurance Guide: Protect Your Cash Flow Against Customer Defaults

Unpaid invoices can choke a business. **Accounts Receivable (AR) Insurance**—often called trade‑credit insurance—shields you from that risk by paying up to 90 % of your receivable if a buyer fails to pay. This guide explains how AR insurance works, who needs it, and how to choose the right policy in India.

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## 1\. What Is Accounts Receivable Insurance?

* A policy that compensates your business when a customer defaults due to insolvency, protracted slow payment, or political risk (for exports).
    
* Covers domestic and export sales.
    
* Premiums usually range **0.15 %–0.75 %** of insured turnover, depending on buyer quality and sector.
    

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## 2\. How It Works in Five Steps

1. **Credit Assessment** – Insurer scores each buyer and sets a credit limit.
    
2. **Selling on Credit** – You ship goods/services within that approved limit.
    
3. **Monitoring** – Insurer (or platform like **PayAssured**) alerts you to rating downgrades.
    
4. **Claim Trigger** – File a claim if payment is overdue beyond the waiting period (typically 90 days) or buyer files for bankruptcy.
    
5. **Indemnity Payment** – Insurer pays the insured percentage (usually 90 %) minus deductible.
    

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## 3\. Benefits for SMEs

| Benefit | Why It Matters |
| --- | --- |
| **Protects Cash Flow** | Default compensation keeps operations running |
| **Bank Financing** | Banks discount insured invoices at better rates |
| **Sales Growth** | Safely extend credit to new or higher‑risk buyers |
| **Market Intelligence** | Free credit reports and alerts bundled in |

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## 4\. Policy Types

| Policy Type | Best For | Notes |
| --- | --- | --- |
| **Whole Turnover** | Businesses with diverse customer base | Cheapest rate; all receivables covered |
| **Named Buyer** | Firms with a few large buyers | Higher rate per rupee, but focused cover |
| **Single Invoice/Shipment** | One‑off high‑value deals | Short‑term cover; useful for exports |

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## 5\. Key Policy Parameters to Review

1. **Coverage Percentage** – Typically 80 – 90 % of invoice.
    
2. **Deductible / First Loss** – Amount you absorb before insurer pays.
    
3. **Maximum Liability** – Cap per buyer and per year.
    
4. **Waiting Period** – Days after due date before you can claim.
    
5. **Exclusions** – Disputes, force majeure, or contrived delays.
    

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## 6\. Claim Checklist

* Copies of invoice, purchase order, and delivery proof.
    
* Reminder emails and formal demand letters.
    
* Statement of account showing overdue status.
    
* Proof of buyer insolvency filing (if applicable).
    

Submit within policy‑defined timeframe—late filing can void coverage.

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## 7\. Choosing the Right Insurer or Broker

* **Credit Rating** – Insurer rated A‑ or better by ICRA/CRISIL.
    
* **Platform Tools** – Dashboard, API integration, auto‑limit updates (PayAssured integration is a plus).
    
* **Claims Support** – Dedicated team, track record of prompt settlements.
    
* **Sector Fit** – Experience in your industry reduces premium.
    

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## 8\. Common Mistakes to Avoid

* Forgetting to declare new buyers or limit breaches.
    
* Waiting too long to notify overdue invoices.
    
* Insuring exports only, leaving domestic receivables exposed.
    

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## 9\. Integrating AR Insurance with Your Credit Policy

1. **Use as a safety net, not a crutch**—still vet buyers.
    
2. **Bundle with invoice discounting**—banks lend more against insured AR.
    
3. **Automate compliance**—PayAssured can flag limit breaches and late notifications.
    

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## 10\. Key Takeaways

* AR insurance transfers customer‑default risk to an insurer, protecting cash flow.
    
* Premiums are modest relative to the hit from even one major default.
    
* Choose policy structure (whole turnover, named buyer, single invoice) to match customer mix.
    
* Pair with robust credit management for maximum protection.
    

> **Remember:** Selling on credit shouldn’t feel like gambling. Insure your receivables and grow with confidence.