Business First September 2017 Business First September 2017 | Page 42
THOUGHT LEADERSHIP
Credit Insurance - the smart way to
support positive business growth
by Nigel Birney, Head of Trade Credit and Political Risk Northern Ireland at Trade Credit Brokers
usiness thrives on predictably. Knowing
what is coming down the track means
that business owners, chief executives
and financial directors can plan for the future
with relative ease.
This predictability is often brought about
by the prudent management of commercial
and contractual risks, which in turn, will
hopefully produce potential growth
opportunities.
For many businesses, a key component of a
robust credit management policy is to insist
on a binding sales contract with existing and
new clients which makes it clear from the
point of sale what you expect to get paid and
when you expect to get paid.
Unfortunately, given the competitiveness in
the marketplace, or in some cases negligence
on the seller’s behalf, this may be pure
fantasy, however, there are options available
to enable businesses to mitigate, or at least
reduce, the impact of buyers defaulting in
payment.
Trade Credit Insurance or simply Credit
Insurance is one way of managing credit risk
as it provides vital protection for businesses
against the potentially catastrophic impact of
bad debt, caused by the failure of their
customer to pay for goods or services sold on
credit.
B
"Credit Insurance provides vital
protection to businesses against the
impact of bad debt caused by the failure of
customers to pay for goods or services
sold on credit”
Brexit Worry
As Brexit negotiations have now kicked off
we should expect to see increased
apprehension as businesses try to stay ahead
of the game and ensure that there is as little
risk to their day to day trading as possible.
Business right across the UK are likely to
see an increased level of insolvency, losses
and projects put on hold as trade credit risks
are exacerbated by Brexit. The more prudent
businesses, with a sensible attitude to risk,
are putting a credit management plan in place
to deal with the likely bumps in the road
ahead.
Downgrading Risk
There is no doubt that during a time of
political and economic uncertainty such as
now, the chances that at least one of a
company’s trade debtors defaulting in
payment increases significantly, which
normally puts an enormous strain on
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cashflow as many bad debts are unforeseen.
There is also evidence that in certain
sectors the average Days Sales Outstanding
(DSO) is starting to creep up, which is a very
worrying indicator and inevitably leads to
payments delays, which again puts unwanted
pressure on the supplier’s cashflow.
However, there is no need for companies to
put themselves in such a perilous situation as
nonpayment, due to insolvency or protracted
default, are covered as standard under a
trade credit insurance policy. Political risk
cover for exporters can also be added, if
required. Talking to a broker is a key first
step.
How does it all work?
Credit Insurance has developed significantly
in recent years into a very straightforward,
costeffective and flexible riskmanagement
tool.
While every company would like to be paid
cash in advance the reality is that, in a
competitive marketplace, it’s a luxury few can
enjoy. Often, it’s the supplier wh