With insolvencies on the rise, is there any reason NOT to get Trade Credit insurance?

By Andrew Smith – Client Director Credit Insurance.

The scores are in, and they make for sobering reading. New statistics coming from the BBC  have revealed that the number of companies going bust this year is on track to be the highest since 2009 when the country was in the midst of a financial crisis. And in a further report from PWC’s head of Insolvency, David Kelly, it has been revealed that there were 2, 315 corporate insolvencies in October 2023, with 98 per cent of those being for companies with a turnover of less than a million per annum.

The PWC report suggests rising inflation, supply chain issues and energy costs are continuing to create a damaging, financial tempest, with smaller companies finding it very hard to batten down the hatches – especially those in the leisure, hospitality, and engineering sectors.

And when the bills mount up, simply surviving becomes problematic. Firms with county court judgements against them of £5000 or more are deemed to be in ‘critical financial distress’ – the number of which has shot up by 25 per cent to a staggering 38,000 just in the last three months.

We don’t like to ponder on the negatives, but these figures paint a grim picture for businesses up and down the country in every industry, inducing worry and ever-increasing risk of losses for those who rely heavily on goods or services from businesses they trade with. Which is why it’s more important than ever to have insurance support in place that at least provides a softer landing when it feels like your corporate safety net is a little unstable.

With Trade Credit insurance, your business is protected against a customer’s inability to pay for goods or services, through either insolvency or protracted default. With insolvencies increasing by ten per cent from July to Sep 2022, with the same result this year, there’s never been a more important time to  get behind (and in front of)Trade Credit insurance.

It wasn’t that long ago that most people believed Covid had brought about the most challenging times for businesses, but mounting evidence suggests that the aftermath and onset of the cost-of-living crisis has proved to have surpassed those difficult times, and every penny spent is under review, so perhaps thinking about the following will help you make up your mind?.

• How do you currently protect against customers becoming insolvent?
• Who decides how much credit new and existing customers should have? Could having this backed by an insurer help?
• Do you often have a clash between credit control and sales/operations?
• Who do you use for legal action to recover debts?
• Is the cost known upfront?

The economic upheaval and market disruptions brought about by Covid led to increased insolvencies and payment defaults. Businesses that had Trade Credit insurance were better equipped to weather the storm, as the policies mitigated the impact of non-payments caused by pandemic-related fiscal challenges.

It's important to note that while Trade Credit insurance provides substantial benefits, it’s not a one-size-fits-all solution. Each policy is tailored to the specific needs and risks of the insured business, considering various factors such as industry, buyer profile, and geographic location.

In the global trade landscape, political and economic fluctuations can significantly affect a company's cash flow and overall stability. Trade Credit insurance helps companies navigate these uncertainties by covering risks associated with political events, currency fluctuations, and other unforeseen circumstances that might lead to non-payment.

An industry that’s particularly  at the mercy of  economic instability is construction. The construction sector saw the sharpest increase in businesses facing critical distress with an increase of 46 per cent compared to just three months ago. This is largely because construction projects often involve lengthy timelines and multiple parties. Trade Credit insurance can protect against non-payment or delays by project owners, main contractors, subcontractors, or suppliers. This coverage ensures that the construction company receives payment for work completed, helping to maintain cash flow and preventing financial strains caused by delayed or defaulted payments.

When taking all of the above into consideration, , Trade Credit insurance, such as that provided via Howden, provides a layer of protection against the uncertainties inherent in commerce, allowing companies to expand their horizons, mitigate financial risk, and maintain stability in an ever-evolving global marketplace. Make sure your business has the best risk management support in place with Trade Credit insurance and talk to a member of our specialist team today on 07471 216 082.