An imminent change to insolvency law and a predicted increase in Covid-19 related business failures could significantly impact the cost and availability of credit insurance, the specialist cover specifically designed to protect against bad debt.
That’s the warning from RBIG Corporate Risk Services who point out that the 01 December return of ‘Crown Preference’ will push lenders and suppliers down the debt payment queue.
The Manchester commercial insurance brokers advise that the revised law will mean HMRC will step ahead of certain lenders and unsecured creditors to gather specific taxes which have been collected on its behalf. These include PAYE, VAT and employees’ NI contributions.
The move comes as the Office for National Statistics reported that in September 64 percent of all UK businesses were at risk of insolvency.1 Analysis by corporate recovery specialist Begbie Traynor also found that some 557,000 businesses are now in significant financial distress.2
“A single insolvency can cause a significant chain reaction down a supply chain, impacting not only otherwise financially healthy companies who dealt with the defunct business, but their suppliers.”
There could be a further knock on effect as trade credit insurers could look to limit their risk exposure by restricting capacity and increasing premiums, warns Hodgson.
Many credit insurers also provide pro-active services which assist policyholders in monitoring the financial health of their customers.
“Trade credit insurers will be monitoring their own potential exposure, particularly in higher risk sectors such as hospitality, retail and travel. This could mean that they restrict capacity and increase premiums.
“Businesses considering protecting their cashflow through credit insurance may be better acting sooner rather than later,” he advises.
Any loss of capacity could also limit access to tools which can help businesses’ credit control procedures. This is because many credit insurers provide pro-active services which assist policyholders in monitoring the financial health of their customers.
- A free publication, Credit Insurance in the Covid Age, is available to download (PDF) by clicking here.
Sources:
1. Office for National Statistics, 22 October 2020; Business Impact of Covid-19 survey results; 2. Begbie Traynor, 29 October 2020: 557,000 businesses now in significant distress as numbers soar.
