Export Insurance & Trade Services

Accounts Receivable Put Options

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Summary information on A/R Put Options:

  • Issued to cover large, publicly traded companies (or large private companies with audited financial statements)
  • Issued to cover one company (not multiple companies)
  • Issued by investment banks (not insurance companies), but are not sold through securities exchanges
  • Provides protection on 100% of the invoice amount (no deductible or coinsurance)
  • Only covers against the risks of Chapters 7 & 11 bankruptcy (does not cover for protracted default)
  • Cannot be cancelled by the issuer
  • Can provide protection on invoices with tenors up to 24 months
  • Will normally be issued only on face amounts in excess of $500,000
  • Compared to accounts receivable insurance
  1. More expensive - 1% - 2% of the face amount per month
  2. Often available when accounts receivable insurance is not
  3. No deductible and no reduction for co-insurance
  4. Non-cancellable (some insurance policies are issued as non-cancellable, but most give the insurer the right to cancel coverage on buyers with sufficient notice to the policyholder)

Examples of companies on which A/R Put Options have been issued:

  • Sears - Kmart
  •  JC Penny
  • Best Buy
  • Toys "R" Us
  • Barns & Noble
  • Macy's 
  • Radio Shack
  • Rite Aid

An Accounts Receivable Put Option is a credit risk management tool that provides protection against the risk of bankruptcy on the covered company. The holder of the A/R Put Option has the right to sell the covered accounts receivable to the issuer of the A/R Put Option in the event of bankruptcy of the company on which the A/R Put Option is issued. A/R put options are not insurance and are issued by highly rated investment banks.

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