Protect against insolvency issues with Trade Credit Insurance
Having the right level of trade credit insurance is more important than ever. Between the collapse of construction giant, Carillion, and the downfall of children’s toy company, Toys R Us, recent big-name bankruptcies are emphasising the need for protection against rising insolvencies. Indeed, 26% of UK companies suffered a financial blow due to the solvency of a customer, supplier or debtor in the last six months, according to R3, the association of business recovery professionals. And the number of insolvencies increased 13% from the first quarter of 2017 to the first quarter of 2018. Such insolvencies result in a ‘domino effect’ of organisations missing out on crucial payments after their biggest customers go bust.
In an era of drastically changing market conditions due to Brexit and more frequent insolvencies, trade credit insurance can help. This form of cover protects against the risk of businesses not receiving payment for goods or services that they sell. Trade credit insurance generally covers the following types of risk:
- Commercial risk, such as when a business’ customers cannot pay their invoices due to financial reasons (e.g. an insolvency).
- Political risk, such as when customers fail to pay invoices due to factors out of their control. Examples include a political event (war), natural disaster or economic issue (currency shortage).