Page 169 - The UnCaptive Agent

142 THE UNCAPTIVE AGENT

bill business—and this includes selling policies through
wholesalers or brokers where you have to collect the
money from the client, then pay for the policy—you
need to pay a lot of attention to the management of
your accounts receivable. The first principle you should
establish in your agency is called binder billing. In other
words, you don’t bind an insurance policy without col-
lecting from the client upfront—the deposit premium,
the down payment premium, or the minimum earned
premium—whichever is greater. This ensures that you
aren’t putting your company at risk for the premium
on a policy you have bound.
Then, you have a choice of how to manage the subse-
quent premiums on a policy of this kind. You can either
collect it as it is due, paying the insurance companies’
portion to them and retaining the part of the premium
received that is your commission (which puts you in the
position of actively managing accounts receivable each
month), or you can insist that all agency bill policies
are premium financed. If you choose to collect the pre-
miums and pay the carrier yourself each month, bear in
mind that you are putting yourself on the hook for the
premium. If you don’t collect it from your client, you
will still have to pay the carrier. Some agencies feel that
this is a benefit to them because they will make money
on the float while you have possession of your client’s
money and before you pay the carrier. I think of this
as fool’s gold because agencies typically experience as
much, or more, bad debt than float.
There is another way to deal with these agency
bill receivables, and that is to use a premium finance
company to finance them for the client. Premium finance
can be an additional revenue source to your agency.
Because premium finance companies allow the agency
to mark up the interest charged to the client, you can