Trade Credit Insurance is a way of protecting your business from the financial struggles of unpaid invoices leading to bad debts.
Many companies up and down the country provide goods and services to their clients on payment terms every single day, and generally these goods and services are paid for without any issues, or with the most minimal of chasing. But what if you client goes out of business unexpectedly? Or what if they too have had unpaid invoices and therefore are now unable to settle yours?
Over the last few years some rather large companies, like Phones4U, Woolworths and Blockbuster, among many others, have all gone into administration leaving behind them unpaid invoices.
The latest company to hit the headlines for going out of business, unable to pay their debts to other companies, is Carillion. Trade credit insurers are set to pay out over £30 million to companies that have not had their invoices settled by Carillion, this sounds like good news for many companies who may otherwise go out of business themselves, and for them it is, however the reported debts of Carillion are a staggering £800,000,000. This will undoubtedly cause significant issues to many of the sub-contractors and suppliers who still have outstanding invoices.
It is not just the big companies that go out of business or struggle to pay their bills. The Association of British Insurers (ABI) 2015 figures show that £150m was paid out by Trade Credit insurers to SME Businesses, who made almost 4,400 claims. Of course, not every unpaid invoice is necessarily going to push a company to the edge, but a run of 2 or 3 unpaid invoices or a large contract defaulting could lead to a company taking drastic measures to stay afloat. And this is a situation I am sure most companies would like to try and avoid.
In addition to the obvious benefits of trade credit insurance, credit insurers also keep updated credit risk information on thousands of companies all around the world. Insurers will then advise you if they are a good credit risk or not, allowing you to manage your businesses credit control effectively.
Turning away from the doom and gloom of administration and unpaid invoices, credit insurance could also be used as a tool to grow your business; if your credit insurer could tell you that a client you are tendering for is a good credit risk, you could then afford them the ability to offer credit. This could be the difference between you and your competitors, especially if the credit was insured, as you will be safe in the knowledge that your invoices will be paid one way or the other.
