The importance of considering Trade Credit Insurance
Amid the current fallout of the Carillion plc liquidation, announced last week, Watkin Davies is focussing on ways to help you protect your cash flow should a customer be unable to pay you.
Carillion entered compulsory liquidation after failing to reach an agreement with lenders to keep it afloat, putting major government contracts and thousands of jobs at risk.
Carillion is well-known for using local suppliers of which many were small companies, who are now waiting to learn if they will be paid. It is estimated that around 30,000 businesses are owed £1bn in unpaid costs.
The risk of debtor insolvency is an inherent part of owning and also growing a business. Sometimes your customers simply do not or cannot pay you — it is unavoidable, but not disastrous. Your business can survive such a loss by purchasing a trade credit insurance policy.
Credit insurance provides your business with protection against the failure of a customer (‘the buyer’) to pay you for the products/services you have delivered. This might be because they have become insolvent or have simply failed to pay you within an agreed credit period.
Watkin Davies recognises the importance of providing not only tailored products to meet your needs but also ensuring that we have a thorough insight into the market; this is why we have partnered with Euler Hermes, Global leader in Trade Credit Insurance.
Risks faced by Companies
Certainly size or ‘blue chip’ status is no longer a guarantee of payment. Nor is past trading experience a reliable guide to the future - in several recent cases companies were paying on time even up to the day they failed. Euler Hermes constantly monitors company performance and provides objective, early warning on deteriorating risks.
After analysing the data, Euler Hermes assigns each of your trading partners a grade, which predicts the probability of a default in the next 12 months. This 1-10 grade gives you an indication of what may lie ahead.
Credit insurance does more than just ensure your invoices are paid. It can help your business succeed by providing the following benefits:
Improved cash flow
Euler Hermes can assist you in the collection of your business’ overdue accounts to improve the speed and success with which you collect money owed to your business. Furthermore, should the worst happen and one of your customers becomes insolvent, the prompt settlement of your claim will safeguard your cash flow.
Focused sales effort for secure business growth
As part of the world’s leading credit insurance group, Euler Hermes monitor over 40 million companies. This unrivalled intelligence gives you the confidence to expand your sales to new and existing customers and markets. It also enables you to sell on open account terms, which can be a major competitive advantage, especially for exporters.
Risk avoidance and reduction of bad debt
With a credit insurance policy, you can better control and protect against bad-debt losses. If you decide to trade on the basis of a Euler Hermes credit limit decision and your customer refuses to pay or becomes insolvent you will be entitled to make a claim on your credit insurance policy. By following their advice, you are able to review existing trading relationships and so reduce your exposure to potential bad debt.
Help in securing trade finance
Your business can secure better borrowing terms with the security that credit insurance provides.
Banks and trade financiers are often more willing to provide trade finance, or may be prepared to offer more favourable lending terms to businesses with a credit insurance policy from Euler Hermes.
Better trading relationships with your suppliers
You may be able to negotiate more favourable terms with your suppliers, since they know the business they are trading with has taken steps to protect its assets and balance sheet.
Tighter credit management discipline
Using their credit insurance policy enables you to reassess your internal credit management procedures. Banks and trade financiers often take the existence of a credit insurance policy from
Euler Hermes as an indicator that the business takes a structured approach to its credit control procedures.
Peace of mind through risk transfer Credit insurance is a simple way to protect your business against the effects of bad debt. Reassurance of knowing that if one of your customers covered under your policy can’t or won’t pay, then in accordance with the policy Euler Hermes will.
There are various extensions to cover and bespoke sector contracts tailored for your specific industry, to ensure the right fit for your business.
Contact us to review and discuss your current insurances and to further discuss Trade Credit Insurance