The term credit insurance is used when referring to a policy that covers a company against losses due to unpaid accounts receivable.
Credit insurance is a useful risk management tool, whereby the risk associated with unpaid bills is reduced by the insurance policy which will pay out on the unpaid accounts receivable after a specified period of time.
The credit insurance premium is usually paid monthly and is calculated using either a percentage of the amount of outstanding accounts receivable, or instead by calculating a specified percentage of the total sales for the monthly period.
Credit insurance does not cover against a lack of payment by individuals, but instead covers against a company’s failure to pay.