Receivable Insurance
Difference Between Accounts Receivable Insurance and Factoring
Receivables Insurance
AR Factoring, also known as invoice discounting or factoring, consists of a company selling its receivables to a third party, known as a Factor. The Factor then collects the money (in many cases). The Factor benefits because they make a margin off of the amount they give your company and the amount they collect from the customer. Your company benefits because you receive immediate cash flows.
Normally a Factor will pay anywhere from 60-90 percent up front for a company’s invoices. Then as the money is collected they remit the remaining 10-40 percent minus a service charge. The service charge is where the Factor makes its money.
Now that we’ve discussed factoring let’s take a look at what accounts receivable insurance is.
AR insurance is similar to normal insurance in that you pay an insurance provider a premium in order to help you in case things get really bad. Instead of health or housing, you are insuring that your company will still receive cash even if the customers decide not to pay.
Now that you see the difference between accounts receivable insurance and factoring, you can probably see that you would use them under different circumstances. Factoring would be a better choice in situations when your company is strapped for cash, but you expect to be able to bounce back fairly rapidly. You would use receivables insurance in situations where you want to be cautious.
One example when account receivable insurance (also known as trade-credit insurance) might be useful is if your company is about to make a huge sale to a first-time customer. With first-time customers you have no history on whether or not they will make their payments and so insuring yourself would be both ethical and potentially a good idea.
Another time when trade credit insurance might be useful is if your company is considering opening up credit to new customers and you aren’t exactly sure what the response will be.
Article Source: http://EzineArticles.com/?expert=Malcom_Goodrich
Even if you do have history on your customer, there is no guarantee that they themselves won’t be hit by a bad debt or lost orders, lots of companies get caught out with complacency – because they know them, they think they are safe but most companies that fold didn’t intend to do so.
If you need a quote, we can help, as with just filling in one form we can go to the whole market rather than you filling in lots of forms, plus we can present the quotes in a non biased way rather than the insurers just telling you the benefits.
see http://www.ciff.co.uk for more details.
Don’t be one of tomorrows insolvency figures.