Company Collapses Highlight the Need For Trade Credit Insurance

Since mid-January, the news headlines have been dominated by the collapse of the UK’s second biggest construction firm, Carillion. It is said that 30,000 supply chain businesses are directly, or indirectly, affected by its insolvency and inability to pay suppliers.

Firms within the supply chain started to tumble like dominoes, as soon as Carillion’s position became clear. Many will struggle to survive, due to not now receiving the payments they had anticipated. Even if some manage to overcome cash flow issues, the likelihood of them being forced to hand out redundancy notices is high.

Whilst it is a really sad story, there has been welcome relief for some of those affected – businesses that had taken out Trade Credit Insurance.

Trade Credit Insurance is, fundamentally, protection against the risk of incurring bad debts. Following Carillion’s collapse, we have learned that only 3% of the company’s suppliers had this protection in place and the payouts to those businesses will range between £5000 and several million pounds. As so few of Carillion’s suppliers had Trade Credit Insurance, only £31m of the £1.5 billion of debts owed is likely to be paid out.

This situation suggests a lack of awareness about what can be vital protection for any business that provides goods and services on credit terms. More awareness of Trade Credit Insurance would appear to be key.

Trade Credit has many benefits, with the top one perhaps being peace of mind. Additionally, the cover will prevent losses being incurred on pre-delivery costs and also protect a business against the impacts that result from Letters of Credit and prepaid orders not being honoured.

Business trading advantages can also be enjoyed. Trade Credit Insurance provides a business with more freedom to grow, enabling it to extend more credit to customers, because of the safety net it has in place. It also enables a business to attract favourable financing and enhance its balance sheet, through higher profit margins.

Powerfully managing risk, with the help of a specialist insurance broker, can avoid worse-case scenarios and help make a business healthier and more vibrant. A broker can help analyse the challenges a business can face and suggest the measures that prevent them arising – a highly valuable service.

Carillion has not been the only high-profile trading collapse in recent months. Monarch Airlines and Palmer and Harvey are just two of the other big-name businesses that have gone to the wall. The warning bells are there and it is time for businesses to arrange their credit insurance protection, before underwriters lose their appetite for offering attractive rates.

If you recognise that you need to find out more about Trade Credit Insurance, please just get in touch.