Put Options cover non-payment of accounts receivable obligations due to a customer bankruptcy that occurs during the contract period. Put Options are routinely available on financially distressed customers and tend to be much more expensive than credit insurance and factoring alternatives.

Put Options are purchased on a single-buyer basis and are typically only available to cover publicly-traded U.S. corporations. However, foreign and privately-held obligors can sometimes be considered. Unlike Credit Default Swaps, Put Options provide a fixed amount of protection over the contract period and are not accounted for as derivatives.

Despite the high cost, Put Options give sellers the flexibility to continue selling to financially distressed customers with no change in terms, even if bankruptcy becomes imminent. This may help protect against preference liability and the coverage may help companies increase revenues with distressed customers as other suppliers manage down credit exposure.