CFOs are increasingly using Accounts Receivable (A/R) Insurance as a strategic tool to support business growth.

A/R Insurance, also known as Trade Credit Insurance, has long been a standard corporate operating procedure in Europe, where complex cross-border trade makes managing receivables a significant challenge. In the United States, A/R insurance is now becoming increasingly relevant to senior finance executives as companies seek new and better tools to manage risk, improve liquidity and support sales growth. Here’s how:

Manage Risk - For many companies, A/R is the largest asset on their balance sheet. The consolidation of customer bases has also served to consolidate receivable risks into fewer and larger accounts. Given the increasing risks to the bottom line that these two factors represent, A/R Insurance is a logical choice to enable companies to underwrite the risk of A/R assets being impaired by customer non-payment.

A/R Insurance is particularly relevant for multi-national firms, and for firms seeking to expand into new markets. New-market risks often include lack of regulation, lack of reliable credit information, and political instability. The ability to mitigate these risks with receivables insurance can allow a company to move forward with its growth plans with confidence.

Improve Liquidity - A/R Insurance strengthens the creditworthiness of a company's receivables by securitizing them, enabling asset-based financing where none was possible before (or where it was only possible at above-market rates). A/R Insurance also carries the insurance policy issuer's implicit assessment of the borrower's credit management processes, reinforcing the notion that a company's assets are real and liquid.

Improved liquidity from A/R Insurance lowers borrowing costs in two ways: First, the lower non-payment risk enables firms to access capital at better advance rates—because borrowing rates decline as risk of non-payment declines. Second, when a company's receivables are insured, the size of its bad-debt reserves can be reduced to reflect the decreased probability of payment default.

Support Sales Growth - Increasingly, CFOs are tasked with finding new ways to support their company's growth. With A/R Insurance, CFOs can use A/R assets to help grow their businesses in three ways: First, based on the improved liquidity detailed above, A/R Insurance helps companies obtain growth-focused financing through commercial banks and other lenders. Second, A/R Insurance supports companies' growth investments without taking additional risk to their balance sheet—always a concern of CFOs. And finally, A/R Insurance facilitates investment by providing financial strength and flexibility that free a company to consider new markets, new customers and new ideas.

It’s clear that Accounts Receivable Insurance is not just coverage in case something goes wrong—it is a strategic tool that can be used to ensure that receivables provide a predictable return and that assets can be used to support corporate growth.