Accounts receivable insurance protects businesses against catastrophic losses from customer non-payment. Unlike a general liability policy, it specifically covers the risk that a customer can't pay, usually due to bankruptcy, insolvency, or prolonged default. Premiums are typically 0.1-0.5% of insured revenue annually, with coverage providing 70-90% of the invoice value. The insurer sets coverage limits per customer based on their credit assessment, so not every customer may be fully insurable.

AR insurance is most commonly used by businesses with concentrated revenue, where one or two large customers represent a meaningful portion of revenue and their failure to pay would be catastrophic. It also shows up in export transactions, where political risk (a foreign government restricting payments) is covered alongside commercial risk. For small service businesses with diverse, small-balance customers, the cost typically outweighs the benefit.

A critical feature of AR insurance is the notification requirement. The insured business has to notify the insurer of any customer experiencing payment difficulties within a specified window (often 60-90 days of the first overdue payment). Late notification can void coverage for that account. If you carry AR insurance, build the notification requirement into your collections process so aging accounts trigger a review against your policy's requirements.