Trade credit insurance: an essential policy for businesses in the current climate?

By Alan Boswell Group

We’ve all heard the old adage that a sale is not a sale until it’s paid for and of course we always expect to get paid for what we have sold but unfortunately this isn’t always the case. 

As a business gains more trading experience it will develop confidence with their existing customers which can lead to long term profitable business relationships. However, occasionally trade credit agreements can fail through a variety of circumstances, often for reasons beyond the customer’s control, leaving unsecured creditors with heavy losses to deal with. The greatest impact from such a loss can be the negative impact on cashflow and loss of turnover, both of which can be difficult to recover from or replace. 

Almost all companies need to win new business to be sustainable, but this often comes with a request for credit terms. This presents a risk to cashflow as there is no guarantee the credit extended to customers will be paid back. Supplying on a pro-forma basis is always the most secure route of supply, but what if pro-forma isn’t suitable, how do you assess the risk, how much credit do you grant and finally how do you monitor changes in your customers risk? You also need to consider your ability to pay your own creditors if you ran into cash flow issues as a result of non-payment from customers. If you are exporting to other countries, extending credit becomes even more risky because it can be difficult to assess overseas customers financials and moreover, problematic to collect if they default.  

It is commonplace for companies to insure themselves against unforeseen risks but they often overlook or don’t know about the ability to protect against financial loss through a customer’s insolvency or default. Like most insurance cover, it comes down to peace of mind. The pandemic has created a range of operational and financial issues for businesses worldwide, we need to ask ourselves what risks the current climate has left our business exposed to? 

Over the last two years governments the world over have provided financial support to businesses to help them weather the storm. But we must be cautious as not all businesses will be able to trade out of the difficulties created, particularly when predicted insolvencies and payment default is now expected to increase by up to 30% worldwide during the next year or so.  

Most businesses have growth ambitions but unfortunately, with growth comes additional risk and minimising this risk can be challenging.  

One solution would be to consider a credit insurance policy which can replace the cash lost through insolvency and payment default, thus minimising the detrimental impact this can have on businesses. At S-Tech Insurance Services our team of experts can offer advice on how you can mitigate credit risk through insurance and focus on working with strong, creditworthy customers. We can also review existing credit insurance arrangements to check that they are appropriate for your needs.  

Contact the team on 01223 324233 to have an initial conversation.