Accounts Receivable Coverage

Accounts receivable coverage protects a business when a covered event destroys the records that show who owes it money. If a fire, flood, or other insured peril wipes out billing ledgers and invoices, the insured may be unable to collect from customers who dispute or simply never pay the balances. This inland marine coverage pays the uncollectible amounts, the cost to reconstruct the records, interest on loans taken to offset the lost cash flow, and reasonable extra collection expense — filling a gap that commercial property forms do not.

For a small business, receivables can be one of its largest assets, and the exposure is often invisible until disaster strikes. Companies that extend credit — contractors, wholesalers, medical and professional practices — carry sizable open balances that exist only as data and paper. Without this coverage, a business could rebuild its building and inventory yet still fail because it can no longer prove or collect tens of thousands of dollars owed to it. Because much modern billing is electronic, buyers should coordinate this with electronic data processing coverage and their cyber program so that both the data and the collectible value are addressed.

The key nuances are proof of loss and recordkeeping. Insurers determine the covered amount from the insured's average monthly receivables and prior collection history, so businesses that keep duplicate records off site or in a fire-resistant safe get faster, fuller settlements — and some forms require it. Amounts later recovered from customers reduce the claim or are repaid to the insurer through subrogation-like provisions. Buyers should set limits based on their peak receivables (not the annual average), watch for sublimits, and confirm whether electronically stored receivables are included or must be added by endorsement.