Some Entrepreneurs May Want to Consider a “Receivable Insurance” Policy

Paul Sullivan reported in Saturday’ New York Times that, “After nearly two decades in the packaging industry, Izzy Eisenberg figured there was a need for more complicated specialty packing products — or as he put it, ‘the things that other people don’t like getting involved in.’

“He was right, and the business he started, Packaging Methods Defined, took off. What worried him, though, was that most of his revenue came from three or four large clients. If one of them didn’t pay — or was even overly slow in paying — his business might have been at risk of failing, taking his personal wealth with it.”

Mr. Sullivan indicated that, “After three years in business, he had enough of a track record to get credit insurance, also known as receivable insurance, to insure what buyers owed him. Since then, he has had four claims, including a large one that would have been a financial blow to his company. The insurance carrier paid them out or otherwise resolved them.”

Saturday’s article went on to explain that, “…[E]ntrepreneurs often need to protect their companies — and their personal wealth — in case a client doesn’t pay its bill. And it would be impractical to keep so much cash in reserve.

This is where so-called limits insurers come in, offering coverage to firms with annual revenues of $1 million to $20 million.

“Euler Hermes, a limits underwriter, recently introduced a plan called Simplicity, aimed at helping businesses with $1 million to $5 million in sales. Another insurer, Coface, offers the International Policy, an industry favorite, that is meant to be easy for a midsize business to buy and use. The policy looks just at the top accounts and insures the rest with a blanket policy.”

Mr. Sullivan added that: “For many entrepreneurs, credit insurance has other uses beyond covering payments. The firms that offer the insurance to smaller businesses have databases on the creditworthiness of companies all over the world.

“‘We meet new companies all the time, but we don’t know anything about them,’ [Bill Hawkins, founder and president of Compatible Cable, a cable distributor in Concord, Calif.] said. His insurer can quickly check the creditworthiness of those businesses.”

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