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April 16, 2021

Could trade credit insurance protect against forecast rise in insolvencies?

This week the Government released its latest insolvency data with the figures showing a rise in the number of the businesses and individuals declared insolvent.

Whilst in March nearly 1,000 English and Welsh businesses hit the financial buffers, the good news is that the level of insolvencies is nonetheless lower than it was this time last year.

The bad news is that this almost certainly due to ongoing government support. The widely-lauded furlough scheme and availability of State-backed loans have no doubt kept the wolf from the corporate door.

In addition special measures which prevent the issuing of statutory notices and winding up petitions to companies adversely impacted by coronavirus are due to end on 30 June.

Special measures ending

Many economic commentators predict that as Government support and protections start to end, the number of failing businesses will rise.

Christina Fitzgerald, Vice President of insolvency and restructuring trade body R3, has warned that:

"The economic damage caused by the pandemic is starting to be reflected in levels of insolvency, but Government support has postponed rather than prevented the true picture being shown in insolvency levels to date."

Credit insurance cashflow protection

trade credit insurance

A surge in insolvencies will have a domino effect on supply chains.

This will mean that otherwise healthy businesses could suffer a financial hit.

Business can insulate themselves from this risk by taking out trade credit insurance.

By protecting against non and late payment, this specialist cover is designed to safeguard your cashflow and wider financial health.

When one company goes under, disruptive ripples can spread along the supply chain" warns RBIG's commercial director, Stephen Hodgson (below)

trade credit insurance

"Trade credit insurance can mitigate against the domino effect, enabling companies to protect their own cashflow and with it those businesses with whom they trade."

He points out too that trade credit insurers can also provide invaluable in helping businesses grow.

"Trade credit insurance is unusual in that underwriters will proactively support policyholders by helping monitor the financial health of their customers.

"This makes sense as raising red flags to a client will assist in minimising their claims exposure. It's a win-win for the insured and insurer."

Proactive support

However, he advises businesses who do not yet have credit insurance to act swiftly. Understandably trade credit insurers are themselves concerned at how the phasing out of Covid support schemes may impact.

This has already seen a reduction in available cover and premium inflation.

"Act now and seek professional advice from a suitably experienced and qualified commercial insurance broker on the options available to your business," advises Hodgson.

A free publication, Credit Insurance in the Covid Age, is available to download (PDF) by clicking here.