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The Only Article On Accounts Insurance You Need To Read

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As a consequence of not being as compelling a story as things like the latest development in display technologies, something that almost never gets talked about in the trade media is receivables insurance.

In fact, I’d even suggest that articles on install processes and white papers on esoteric control system concepts get more press. As a topic, receivables insurance doesn’t exactly grab readers. But bedtime reading or not, it could be crucial.

It’s commonplace in many sectors for vendors to insure big outstanding balances from their customers, although at least in the consumer electronics sector, given what I’ve been told in my travels if you’re looking for anything beyond around 5 million in coverage, it gets both expensive and difficult to acquire underwriting.

Sitting down with colleagues not long ago, we got on this topic (things get pretty wild around here) and we began wondering about how many AV companies might insure their receivables owed from clients.

Our best guess together was virtually none. (Actually, that’s not entirely true: One friend told me that he knew one AV pro years ago that regularly did so, “but only after he’d been badly burned.”)

One hurdle I uncovered when talking with a friend who’s in insurance (I know all the fun people) is that the lines between payable and not payable for an AV company that sells projects can be a little blurrier than a vendor that sells equipment. For a manufacturer or distributor, it’s a case of “we delivered, and they didn’t pay.” But AV integration companies typically have multiple progress payments on a single project, especially if it’s a large one that takes a year or more to finish, and each payment dependent upon reaching certain milestones.

And of course, it’s standard for AV pros to have a final 10 percent of the job cost as a “holdback” dependent upon solving any outstanding service or performance issues before the client pays in full.

Buying receivables insurance is one thing, but then add in a dispute over what qualifies as “finished,” and it might be a little more challenging to collect from the insurance company. Still, I’ve heard so many stories about AV companies whose client stuck them for virtually the entire bill, and whose only recourse now is to litigate. Going to court is an expensive, and by no means guaranteed solution.

It’s not as if AV companies don’t already carry a lot of insurance. From liability coverage of at least a couple of million or more, to insuring the work premises, inventory, work vehicles and even tools, the monthly and annual expense for coverage is substantial. With that in mind, does it make sense to secure coverage against default for every single one of your projects?

In my opinion, and the opinion of colleagues with whom I’ve spoken, I’d have to say no. My personal opinion, influenced by peers I respect, is that you’re probably best served by buying coverage on large jobs where you have a “feeling” that acquiring a little extra CYA is a sound move.

In fact, running a tight ship with your receivables in the first place is probably 99 percent more effective than taking out default insurance. One colleague told me that he usually doesn’t buy into something that doesn’t have a solid calculable payback. Rather, he sees his best insurance coming from making sensible business decisions: Since his company changed their policies on collecting payments, he feel less exposed than the ‘old’ days. By rewriting his company’s contract and payment terms with a lawyer’s review, he hopes to stay out of trouble intelligently.

Like every other business decision, do your own math, and balance the cost of coverage versus just how far up the creek you’ll be if that one particular client stiffs you.

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