12.01.2008 — Right now, most custom integration dealers are keeping a careful eye on their company's financial metrics.

Ensuring that your cash flow is strong can range from making sure that your payables schedule isn't pinched to quizzing your salespeople on what their deal funnel looks like over the next few quarters.

Of course, central to a healthy cash flow is getting paid on time.

Who's Currently Using Receivables Insurance?

When Circuit City first initiated bankruptcy proceedings, an agency rep friend and I were gossiping about how much Circuit City owed and to whom.

While it's normal for suppliers to take out receivables insurance on large balances owed by their dealers, we wondered how many custom installers take out receivables insurance on large projects. Between us, we only knew of one who did so as a matter of policy.

On the other hand, I know two dealers in my market who've been left holding the bag on six-figure installs in the past year. And by holding the bag, I mean that they've failed to be paid for anything beyond their initial deposit.

No matter what your top line sales numbers look like, that's got to sting.

While clearly both firms have issues with their policies about phase payments that they're only now addressing, much like closing the barn door after the cow's escaped, this raises the question: is it worth carrying receivables insurance?

Small Business Coverage: How Much is Enough?

I spoke to my insurance broker about the subject, since he does a lot of work with small companies, although primarily in the oilfield service industry. He reported that virtually none of the companies he covers takes out receivables insurance.

You probably already carry a lot of coverage. Liability, commercial vehicle, property insurance, maybe even insurance on your tools. Granted, it's better to be covered than not covered, but how much is enough?

Before you start taking out coverage on your receivables, you need to put solid policies into place regarding how you bill your work and be firm with them.

Maintain crystal clear communication with your clients, and that's likely to avoid 99 percent of your potential issues.

In a Complex Project, Know Your Rules

What criteria needs to be met in order to file a claim? As a manufacturer or agent, it's simple enough to say that you delivered the order, never got paid, and all attempts to collect have been fruitless.

But custom integration projects can be large and complex, and as any dealer who's had a payment issue in the past can attest to, what qualifies as "finished" can be tricky to prove if your contract with the client is even a little ambiguous.

In a situation like that, your coverage might not do you any good at all.

On the other hand, if you're looking at the potential of being owed sums so large that not receiving them in a timely manner might sink you, than it is probably wise to call your insurance broker and discuss your options.

As with anything in this business, your own mileage may vary.

Tell us what you think: do you take out insurance on your receivables? Have you done so in the past? Have you ever wished that you had?

Let us know in a comment below.

Lee Distad is a freelance CEDIA Certified Professional Designer who offers design and process consultation to firms in the Custom Installation industry, as well as copy writing and other professional writing services. Lee’s business and industry blog can be read at http://www.leedistad.com