Given the level of uncertainty across the globe, both politically and economically, we take a look at how Trade Credit Insurance can have a positive effect on your business’ cash-flow and how you can start to offer greater levels of credit to your customers.
UK Economy Stagnating, Increased Insolvencies, Cashflow and Finance issues – Credit Insurance?
Read on to find out more about what one of our providers has to say about Trade Credit Insurance.
UK Economy Stagnating, Increased Insolvencies, Cash-flow and Finance issues – Credit Insurance?
We have recently seen the weakest readings since 2012 and “indicated that the UK economy remained close to stagnation midway through the second quarter”. We are now expecting more insolvencies if the economy is flat.
The number of company insolvencies has already increased in Q2 2019 compared with Q1 2019. Whilst 14% of all UK businesses were also experiencing ‘significant’ financial distress at the end of June 2019, with the average debt of insolvent companies more than doubling to £66,226 a year, from £29,872 in 2016.
57 business are now being helped by credit insurers to cope with bad debts every day. The number of insurance claims made so far this year by UK businesses facing bad debts has reached its highest level in ten years according. The value of claims paid was £48 million, up £1 million on the previous quarter.
Sometimes in business, things don’t always work out. The accumulation of bad debt coupled with wider negative economic circumstances can speed up a collapse or closure, regardless of the perceived success of a business. Continued Brexit uncertainty, competition from online sales, rising business rates, weaker consumer spending, and increased operating costs due to the weaker pound are all contributing to the continued challenging trading climate.
Protecting against non-payment is becoming essential, the expertise and support of trade credit insurers can also help firms to grow and trade with greater confidence, reducing the risk of facing bad debts. Having this cover can also improve access to funding from banks and other financial institutions. While the number of firms with this protection is rising, too many firms remain at the mercy of bad debts.
Cash-flow is the lifeblood of all businesses and access to finance can be less forthcoming in these times and alternative sources are hard to come by. When funding becomes a problem, cashflow dries up and late payment increases, creating a vicious circle where SMEs aren’t paid so stall payments themselves. 48% of invoices issued by small businesses are paid past their due date. This means that on any given day, the average UK small business was owed £23,360 in late payments – a 17% increase from the same calculations made in February 2018.
One potential way access to funding, or to just protect the business from non or late payment can be secured is by taking out credit insurance that will improve the credit risk management process. Having a sales ledger protected through credit insurance can provide additional security and reassurance for a business owner, bank or financial institution, especially if you want to trade in export markets. Credit insurance gives the comfort that you have created a safety net for a business by putting appropriate and robust risk management procedures in place. Not only that, but suppliers of goods, products and raw materials to a business can also feel reassured knowing that they have taken the necessary steps to future-proof the financial integrity of the company and that they have a better chance of getting paid and getting paid on time.
Credit insurance also assists significantly in the safe growth of a business by enabling access to real time information on the financial health of your customer or prospective customer, which allows businesses to trade with confidence knowing that should an unforeseen bad debt occur, the business will not be adversely affected.
Credit insurance is one vital way of shielding small businesses from harm in the future and gives business owners (and banks and other lenders) confidence that they will be secure going forward.
Why should businesses take out trade credit insurance?
- To expand sales
- Trade credit insurance helps businesses to safely sell more to existing customers or expand to new customers, that may otherwise have been deemed too risky, knowing they are insured should the customer not pay their debts.
- To facilitate expansion into new international markets
- Trade credit insurance helps protect businesses against the risks of exporting overseas, reducing uncertainty for firms.
- To obtain better finance terms
- Banks will typically lend more capital to businesses who have trade credit insurance in place.
- To receive in-depth knowledge of the marketplace
- Trade credit insurers provide businesses with extensive knowledge of companies, sectors and economic trends to help them grow safely.
- To protect against non-payment
- Should a customer be unable to pay its debts due to insolvency or protracted default, trade credit insurance will pay out a percentage of the outstanding amount owed (typically around 90%).
To find out more about Trade Credit Insurance and how Fiveways Insurance can help you find the right cover, call us on 01952 812380 or email enquiries@fivewaysinsurance.co.uk.