According to the latest estimates from the Organisation for Economic Co-operation and Development (OECD) the UK economy has been hit hard by the COVID-19 crisis and if there is a second wave of the virus later this year, it expects the economy to shrink 14 per cent in 2020.
Sadly, this makes it likely that we will see an increase in insolvencies and so managing your credit risk takes on greater significance.
Step forward Trade Credit Insurance.
Trade Credit Insurance provides cover for businesses if customers, who owe money for products or services, do not pay their debts, or pay them later than the payment terms dictate.
Insurers typically provide cover via an annual policy, with specific limits for each customer based on the maximum value they are likely to owe at any time during the year. A customer insolvency, or default results in a claim under the policy.
Trade Credit Insurance is an important part of a business' credit management process and can remove the need for expensive bank guarantees and letters of credit, removing such liabilities from their balance sheet, thus freeing up working capital. In the knowledge that invoices have been insured banks may also be more willing to arrange loans.
The underwriting process that insurers use for Trade Credit Insurance also helps companies to monitor their debtors’ by continuously assessing their customer's financial security and probability of default. This can be of particular value as businesses seek new customers, perhaps in new trading sectors, possibly in new territories, in this post COVID-19 era.
Offering businesses the certainty of settled invoices, providing balance sheet support and enabling growth Trade Credit Insurance has a big role to play as the economy gets moving again.
As part of PIB Group, D E Ford can call upon the expertise of a Trade Risk Solutions team. If you wish to discuss how Trade Credit Insurance could assist your business please call us on 01904 784141.
John Goodacre is a Commercial Account Executive at D E Ford Insurance Brokers (part of PIB Group).
*Source: OECD Economic Outlook, June 2020
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