Accounts Receivable Insurance
See Accounts Receivable Financing. If you're actually worried about the lions eating your clients before they pay, you can buy accounts receivable insurance, which is, in essence another form of factor. In this case, the system works like term life insurance. The one seeking the insurance pays a fee of, say, 1% of the total amount of money at risk after the accounts receivable insurance company has thoroughly vetted the credit worthiness of the one owing the money, and scoured every term on the contract.
If the account receivable is paid, then the insurance company keeps all of the premium paid to them, i.e., a notional profit margin of 100%. Obviously, those seeking accounts receivable insurance are a self-selected group, likely sniffing risk in the dead-beatism factor of the people owing them money, or they wouldn't have bothered to seek out insurance in the first place. So while the AR insurance industry may seem like a crazy good business to own, things don't always work out. Ask the fat lion for details.
Related or Semi-related Video
Finance: What is a Balance Sheet?47 Views
finance- a la shmoop. what is a balance sheet? well it's a snapshot. a financial
reckoning of what you own ,and what you owe at a given moment in time. well note
that a balance sheet is divided into columns like this. on the left are good [balance sheet pictured]
things like things you own. on the right side are things you owe like debts or
obligations you have to pay off. well think for the balance sheet of little
brother Inc. you have total assets of $142 with current assets of a hundred
bucks .80 bucks of that current asset set is cash and twenty dollars is an IOU
from the tooth fairy ie dad ,who woke you up last night [clown next to child's bed]
replacing the tooth and since you're old enough you just winked and he said yeah
I'll get you a twenty from my wallet in the morning. note that if he'd said I'll
get it for you a year and change from now. it wouldn't be a current asset it
would be a long-term asset, because current means that a promise or a
product or whatever turns into cash within a year. you mowed the lawn for the [assets listed]
summer for mrs. garden bottom and billed her $500. she paid you four hundred
ninety dollars and still owes you ten bucks. that money lives in your balance
sheet on the assets side as an account receivable. you have four hundred ninety
seven little blue marbles as your only asset which your friend Billy has
offered you tons of times to buy for twenty four dollars so you can hold that [kids exchange marbles and money]
amount as inventory. it's an asset. since you know you deal in marbles regularly.
and you paid ten dollars for ten year rights to enter your sister Jeannie's
room anytime you want. you still have eight years to go on that paper so you'd
depreciate its value at a dollar a year worth eight bucks today. total everything [balance sheet shown]
up and you have that one hundred forty two dollars in assets on your own
personal balance. sheet okay so what about your liabilities. well you have
total liabilities of a hundred dollars. you owe Joe lunch bully thirty bucks to
learn why you'll stop hitting yourself. or rather to stop doing so you owe him
thirty bucks tomorrow and you know you'll owe him sixty bucks a year in
change from now maybe more in the future and maybe not if you grow and put on a [ laughing boy is offered cash]
few pounds. but you are conservative financially so you reserve that 60 bucks
as if it's a certain long-term debt, so it goes down there on
line 13 .you borrowed ten bucks from your boo
Amy the auditor for lunch she actually submitted to you an invoice. albeit
romantically. so you have ten bucks on line eight there .so you have one hundred
forty two dollars in total assets and a hundred dollars in total liabilities, but
wait they don't balance. oh no what shall we do ?well a balance sheet accounts for
this it's called ale and it stands for assets minus liabilities equals equity. [man gives thumbs up]
well you have assets $142 we just outlined and you can subtract your
liabilities which we just outline of a hundred bucks and you have net equity
value to your life of $42. it looks like little brother Inc doesn't have to worry
about filing for bankruptcy anytime in the near future which is good because
with Joe lunch bully in the picture, life is hard enough as it is. [kid frowns as bully pushes his own hand in his face]
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