The U.S. construction industry is dealing with any number of conflicting forces as 2025 progresses. 

While some positive trends continue to create opportunities—think ongoing growth in infrastructure work as well as in sectors like healthcare and education—they aren’t necessarily balanced by the challenges. Drags on business haven’t gone away, whether economic uncertainty due to tariffs, inflation and the specter of recession, a skilled labor shortage, or fluctuating material costs. 

One of the biggest threats to any business today is the sharp increase of corporate bankruptcy. Big corporate bankruptcies are up 33 percent year-over-year and up 44 percent historically. Bankruptcy usually comes from the place one least expects it.

Steering the course smoothly and successfully during these times requires a firm hand on business and financial management and making sure that all the tools available are being utilized. Insurance solutions, for example, can be invaluable. 

Take accounts receivable (AR) insurance, also known as trade credit insurance. Not only is it valuable when payments are under pressure, but it can also be a lever to increase financing and growth. Here’s what’s important to know.

HOW A.R. INSURANCE WORKS

Construction firms are always under pressure to collect funds due to the nature of the business: long project timelines, payments that are milestone-based, and the complications of contract specifications. Not only are payment terms longer (often up to 90 days), but practices like retention holds combined with disputes and change orders also create issues.

By 2024, only 58.2 percent of general contractors said they received payments on time, versus 66.8 percent in 2023. Eighty-two percent wait over 30 days for payments, versus 49 percent in 2022. That’s a problem when accounts receivable typically comprise a significant portion of a construction firm’s assets.

Enter AR insurance, a specialized commercial line of insurance that provides a safety net against the risk of financial losses due to non-payment for services. Coverage can begin at a contract’s start or when services are rendered or invoiced.

The risks covered include: 

  • A payor’s insolvency
  • Defaulting on or delayed payments
  • Non-acceptance of goods (selectively)
  • For cross-border projects, losses resulting from war, civil unrest, or currency inconvertibility

TOOL FOR GROWTH

Accounts receivable insurance can be a bonus for growth. Many businesses may not think of trade credit insurance as a tool that improves financing and supercharges growth. The following are some aspects to think about.

Accounts receivable is frequently a critical consideration for credit. While accounts receivable is often one of the largest assets on a balance sheet, it is often uninsured. Many financial institutions won’t offer credit terms for lending on accounts receivable unless those receivables are insured. It also mitigates customer concentration risk that are of concern to a lender.

An AR insurance policy can also lead to increased credit. This line of coverage enhances creditor security, which can lead to better terms for a borrower. For example, a lender could boost the margin ratio from 75 to 90 percent when the borrower has trade credit insurance. So, for a company insuring $10 million in receivables, the increase could result in $1.5 million more in financing. 

Additional financing can create greater flexibility and confidence, allowing organizations to enter into contracts or conditions that might not otherwise be available. Some contractors “outpunch their weight” by taking on larger projects, financed by their lender, underpinned by the AR insurance policy.

Additional capital can also be leveraged into faster incremental growth while protecting against a critical risk. What’s more, if companies take the opportunity to use extra financing to facilitate growth, the additional revenue and profit can help offset the cost of the trade credit insurance.

WHAT’S NOT TO LIKE?

Even with the upsides, contractors may be hesitant to get on board with an AR policy. Insurance costs are already high, without adding another line of coverage – and expense – when margins are tight. Further, this is generally a reactive solution for post-loss recovery; some firms may prefer to employ more preventative credit-management practices against defaults.

Further, it helps to partner with a broker that has deep experience with construction and its pain points, and that also has a good network of carriers, because not every construction firm necessarily qualifies for coverage. Plus, certain situations are not covered. Think of non-payment as a result of defective products or contractual disputes.

Still, as the risks continue to mount, with payments delayed and a potential for more insolvencies, AR insurance is worth looking at as a valuable component of a construction firm’s broader risk management strategy.

about the authors

Craig Tappel, CPA, CPCU, ITP, CRIS, TRIP, ARe, AMIM, is chief sales officer of global Top 5 insurance brokerage Hub International’s construction practice. He brings years of experience to his role including past work with consulting, brokerage, and underwriting organizations. Craig volunteers for the Tennessee Society of CPA’s, the CPCU Society, as a board member of the Society of Insurance Trainers & Educators and an Independent Insurance Agents of America Virtual University expert faculty member.  

Jerry Paulson is senior vice president within the complex risk practice at global insurance brokerage Hub International. He is responsible for implementing discreet risk-transfer solutions supporting all sectors unlocking liquidity, addressing supply chain risks, and supporting working capital needs. He leads the placement of trade credit, political risk, trade disruption, carbon credit, structured credit, synthetic letters of credit, parametric, completion and production guarantees, contingent risks and tax insurance products.