Do you need an insurance policy that can also boost your trading confidence?  Trade credit insurance is just the thing you need, if you want a solid platform of financial certainty, from which to launch business growth.  Read on, to find out more.

The UK economy has shown itself to be very volatile.  Global situations are also increasingly impacting on trading stability and generating supply chain issues and extreme cost-related impacts.

This is translating into an upswing in creditors’ voluntary liquidations (CVLs), compulsory liquidations, Company Voluntary Arrangements (CVAs) and administrations.  Businesses are entering into insolvent liquidation with sometimes little warning.  Almost every industry sector is affected.

So, as you yourself carry out the day-to-day business of your company, who can you trust?  Who in your customer base could be suffering a cash flow crisis that could prevent them paying you and so bring your business down?  Can you put your faith in that new customer, who is requesting your goods or services, to actually pay for them?

Spotting the symptoms

All businesses need to learn to spot the symptoms of a customer’s difficulties.  Having cash in the business is critical to business survival.  Worryingly, many small businesses in the UK are cash flow negative for several months a year.  If things worsen, they are unlikely to survive.  Already, many struggle to pay staff on time.

All business owners need to be acutely aware that any customer – even ones they have traded with for many years – could be on the edge of a precipice.  Supply chains are hugely complex and many business owners are unlikely to know who their own customers are dealing with.

Alarm bells should start to ring, if certain things happen.  Watch out for changes in payment patterns, such as later payment, part-payment or excuses as to why payment has not been made.

Has a customer asked for a change in credit terms?  Have they suffered an incident, which could now be having an impact? Are their orders suddenly becoming less frequent or lower in volume?  Have they restructured their company?

All could indicate there is a financial problem, which could become your problem before much longer.   Your sales and customer service team, as well as your accounts team, need to be alert and flag up any concerns, as fast as they can.

Business confidence

 You may have a fantastic product or service offering and want to explore new markets, to fuel your growth.  But can you really do that?  What if you simply attract customers who will ultimately not pay your invoices?  How can you assess the liquidity of  companies you  don’t know?  Could growth plans shoot you in the foot?

Invoice financing

You can, of course, try to strengthen your invoice collection processes and tighten credit terms but this may have little impact, if a customer simply cannot pay.

You could try invoice financing, whereby an invoice financing firm pays your invoices and then collects the money from your customers.  It puts cash in your business, helping with liquidity However, whilst that might suit a start-up business or large corporation, it might not be right for you.  Fees are attached to the service and there can be exit penalties too.  Bear in mind that debts might still not be paid through this route.

Invoice financing is also reactive, simply focusing on invoices you have already drawn up for customers and seeking to collect the money for them, having already advanced you the cash on those.  It will not stop you making an error of judgement and working with a customer who will not pay, or prevent you from drawing up the wrong credit terms.

It will also be of no help if a customer’s business fails. That would leave you with a debt on your hands.  If it’s a big one, that could cause your demise too.

The Trade Credit Insurance solution

Despite all  pressures, trading peace of mind is being secured by some businesses.  These have elected to take out Trade Credit Insurance.

This is a type of insurance that covers your invoices and ensures you receive the payment for goods and services you supplied, even if a customer’s business fails.  It insures your trade receivables due in a 12-month period, or just some of them if you prefer.  Different policy types give you the option of cover for all invoices, or just selected invoices.

Trade Credit Insurance removes the severe impacts that late payment causes to a business and eliminates the risk of an insured business being brought down, because of the insolvency of a customer.  Some companies operate this solution alongside that of invoice financing, for that reason.

The proactive approach of Trade Credit Insurance

Trade Credit Insurance is also very proactive.  A Trade Credit insurer works with the insured business, offering enormous insight into the customers they are trading with and ones they wish to trade with.  With access to large amounts of data, the insurer can advise who is a good risk and who is not.  They can also suggest which credit terms would be the most appropriate for each individual customer, or where upfront payment needs to be requested.

This is a huge benefit for those seeking growth.  There is the security of knowing invoices will be paid, so that, in turn, employees can take home their salaries and the business can  generate profits.

There is also a strata of confidence on which a business can build, as it seeks to grow and expand into new markets, whether UK-based or overseas.  Each potential customer’s creditworthiness is assessed and decisions made on that basis.  Even if the customer ultimately fails to pay, the insurance will step in and do so.

Removing pain points

Trade Credit Insurance takes the hassle out of  trying to chase debts, or pursue legal action to try to gain payment, freeing up business time.   Cash-flow worries do not hold back any ambitions, simply because the business cannot afford to buy the raw materials required for a new product, or pay to attend the trade shows that  help launch a product.

The pain of late payment, which affected over half of small businesses in 2022, is removed and so is the threat that overdue invoices bring – a  factor in around a quarter of business failures.

It is an insurance that reduces exposure to financial risk, in a trading climate full of uncertainty and unpredictability.  It can leave a business feeling comfortable and confident.

Is there a need for Trade Credit Insurance?

Figures from the Association of British Insurers regularly suggest there is a big need.  At times, following big collapses, in sectors such as construction, other businesses in the supply chain have only survived because they have been able to call on trade credit insurance.

It is a means to avoid becoming a toppling domino in a chain of events that begins whenever one business cannot pay its suppliers or sub-contractors.

Regardless of the sector in which you operate, having a Trade Credit Insurance policy behind you can be the difference between trading success and a company financial failure.

Finding out more

If you wish to discuss how Trade Credit Insurance could assist your business, call our Leeds-based broking team at Gauntlet Group today, on 0113 244 8686.   Rather than suffering sleepless nights, you could look forward to precious trading stability, or the business growth that inspired you to become an entrepreneur and business owner in the first place.