The economy has gone through a turbulent, to say the least, few years since the emergence of COVID-19, which has had a financial impact on most sectors. There has been a domino effect of struggle since, with businesses suffering as a result of their suppliers also being impacted and not being able to supply, and vice versa; suppliers have been affected by their buyers not being able to afford to continue trading.
In 2022, the percentage of business insolvencies in England and Wales jumped to the highest it has been in 13 years, with 22,109 closing their doors. This figure, which was the highest since the recession in 2009, is also 57% higher than in 2021 and isn’t looking likely to get better. Allianz Trade’s insolvency report from April 2023 predicts UK business insolvencies will increase by 16% in 2023 and 9% in 2024**.
At McClarrons, we are seeing more clients impacted by the aftereffects of the pandemic and inflation, and as such, are having more frequent conversations around Trade Credit insurance as part of the wider business insurance package, which can help to keep cash flow high.
What is Trade Credit Insurance?
Trade Credit Insurance can help businesses avoid financial difficulties if they are left with bad debt due to circumstances beyond their control. It manages the risks associated with selling goods or services on credit terms and protects businesses against non-payment and insolvency by their customers.
Example of Trade Credit Insurance
An example of Trade Credit Insurance: A business that regularly supplies a local shop finds out that their customer has become insolvent and cannot pay for the previous order. The supplier now has to consider the time and resources it would take to make that money back, how this loss affects their cash flow and business reserves, and what they need to do to continue operating. With Trade Credit Insurance, that supplier would typically be covered for up to 90% of the balance owing at the time of failure.
Not receiving payment is a huge risk that many businesses face as most tend to extend credit to their customers. Unless businesses make transactions on a pre-paid or payment-upon-receipt basis, then it can be difficult to ensure that payment is received every time.
Trade Credit Insurance is available to manufacturers, traders and service providers and is a valuable tool in managing and controlling risk when it comes to money; it mitigates risk by providing a safety net for businesses when their buyer/customer doesn’t pay, whether it’s due to insolvency, refusal or an inability to pay under the terms of the contract.
Additional Benefits of Trade Credit Insurance
One of our preferred Trade Credit Insurance partners and the world’s largest trade credit insurer, Allianz Trade, offers businesses peace of mind and confidence through their policies. Not only does their cover take the worry away of not being paid what you are owed but it creates additional benefits and opportunities for businesses, such as standing out from competitors by being able to offer more attractive payment terms to customers and having insight into a database of over 85 million companies worldwide so that they can be pre-vetted and informed decisions can be made on whether to extend your business to them.
Watch Allianz Trade’s video below to understand what Trade Credit Insurance is, how it protects businesses against unexpected risks that can result in bad debts, and how it can create additional benefits for your business, your customers, and your financial partners.
We are here to help
With current ongoing financial pressures and reports that the combination of slower growth, higher inflation and higher interest rates has caused increased corporate risks (mainly seen in the construction, transportation, telecom, machinery and equipment, retail, household equipment, electronics, automotive and textiles sectors***), know that we are here to help you.
Trade Credit insurance policies can be customised to meet the specific needs of your business, depending on the nature and size of its operations and are there to help you manage your credit risks and operate with confidence at home or abroad.
We hope this article has gone some way to provide insight into Trade Credit Insurance and how it may be able to benefit your business.
If you would like more information on Trade Credit Insurance or a thorough review of your business insurance, please contact our Commercial Insurance Team on 01653 609151 or at commercial@mcclarroninsurance.com. If you’d prefer, you can fill out the form below.
Remember, as a McClarrons client, you will also benefit from access to the expertise of our in-house claims team, who will guide you through the claims process and offer advice and support.
Sources:
** https://www.allianz-trade.com/en_GB/newsroom/allianz-trade-insolvency-report.html
