Accounts Receivable Coverage
Inland marine coverage that reimburses the insured for amounts owed by customers that cannot be collected because records were destroyed.
What It Is
Accounts Receivable Coverage is an inland marine insurance product that reimburses the insured for amounts owed by customers that cannot be collected because the accounts receivable records were damaged or destroyed by a covered cause of loss. It also covers the cost to reconstruct the records, collection expenses above normal, and interest charges on loans taken to offset the lost income.
This coverage is particularly important for businesses that maintain significant accounts receivable balances and rely on paper records or systems that could be destroyed by fire, flood, or other physical perils. While digital record-keeping has reduced the exposure for some businesses, physical backup records and hybrid systems still create vulnerability.
Accounts receivable coverage is typically written on an all-risk basis with a per-occurrence limit and may be included in a commercial property policy or written as a standalone inland marine coverage.
Why It Matters for Brokers
Businesses with large accounts receivable balances face a significant financial risk if their billing records are destroyed. Without records of what customers owe, the business may be unable to collect outstanding invoices, creating a cash flow crisis. Brokers should evaluate accounts receivable exposure for any business with significant A/R balances, particularly those that have not fully transitioned to cloud-based accounting systems with off-site backup.
Real-World Example
A construction materials supplier with $2.5M in outstanding accounts receivable suffers a fire that destroys their office and all paper billing records. Their accounting software server was also in the office and destroyed. The accounts receivable coverage pays $1.8M for amounts that cannot be reconstructed from customer records, plus $45,000 in record reconstruction costs and $30,000 in extra collection expenses.
Common Mistakes
- 1Overlooking accounts receivable coverage for businesses with significant A/R balances, especially those without cloud-based backup systems.
- 2Setting coverage limits too low relative to the actual accounts receivable balance that could be outstanding at any time.
- 3Assuming standard property coverage includes accounts receivable protection when it typically requires a separate inland marine endorsement.
How brokerageaudit.com Handles This
Policy Checker identifies accounts with significant revenue and evaluates whether accounts receivable coverage is in force with limits appropriate to the business's receivable volume.