Business First September 2017 Business First September 2017 - Page 42

THOUGHT LEADERSHIP Credit Insurance - the smart way to support positive business growth by Nigel Birney, Head of Trade Credit and Political Risk Northern Ireland at Trade Credit Brokers usiness thrives on predictably. Knowing what is coming down the track means that business owners, chief executives and financial directors can plan for the future with relative ease. This predictability is often brought about by the prudent management of commercial and contractual risks, which in turn, will hopefully produce potential growth opportunities. For many businesses, a key component of a robust credit management policy is to insist on a binding sales contract with existing and new clients which makes it clear from the point of sale what you expect to get paid and when you expect to get paid. Unfortunately, given the competitiveness in the marketplace, or in some cases negligence on the seller’s behalf, this may be pure fantasy, however, there are options available to enable businesses to mitigate, or at least reduce, the impact of buyers defaulting in payment. Trade Credit Insurance or simply Credit Insurance is one way of managing credit risk as it provides vital protection for businesses against the potentially catastrophic impact of bad debt, caused by the failure of their customer to pay for goods or services sold on credit. B "Credit Insurance provides vital protection to businesses against the impact of bad debt caused by the failure of customers to pay for goods or services sold on credit” Brexit Worry As Brexit negotiations have now kicked off we should expect to see increased apprehension as businesses try to stay ahead of the game and ensure that there is as little risk to their day to day trading as possible. Business right across the UK are likely to see an increased level of insolvency, losses and projects put on hold as trade credit risks are exacerbated by Brexit. The more prudent businesses, with a sensible attitude to risk, are putting a credit management plan in place to deal with the likely bumps in the road ahead. Downgrading Risk There is no doubt that during a time of political and economic uncertainty such as now, the chances that at least one of a company’s trade debtors defaulting in payment increases significantly, which normally puts an enormous strain on 40 cashflow as many bad debts are unforeseen. There is also evidence that in certain sectors the average Days Sales Outstanding (DSO) is starting to creep up, which is a very worrying indicator and inevitably leads to payments delays, which again puts unwanted pressure on the supplier’s cashflow. However, there is no need for companies to put themselves in such a perilous situation as non­payment, due to insolvency or protracted default, are covered as standard under a trade credit insurance policy. Political risk cover for exporters can also be added, if required. Talking to a broker is a key first step. How does it all work? Credit Insurance has developed significantly in recent years into a very straightforward, cost­effective and flexible risk­management tool. While every company would like to be paid cash in advance the reality is that, in a competitive marketplace, it’s a luxury few can enjoy. Often, it’s the supplier wh