Rob Farquharson, Head of Credit and Surety at Thomas Carroll, has over 23 years of experience in the trade credit industry. In this article, he shares why, despite rising costs and economic uncertainty, now is the right time for businesses to invest in Trade Credit Insurance and how it can provide vital protection and financial stability.
Welsh businesses are facing a tough time – rising costs in the form of higher National Insurance contributions and an increase in the National Minimum Wage are all having a knock-on effect on the bottom line.
So naturally, many SME owners might be thinking that now is not the time to be investing in Trade Credit Insurance, but I actually think the opposite is true – now is the perfect time.
For those of you who may not have heard of Trade Credit Insurance before, in a nutshell, it is an insurance product that protects businesses if customers don’t pay their bills or go into administration. It protects a company’s ledger where customers are dealt with on credit terms. It helps companies mitigate the risk of trading with new companies, or businesses from other countries.
Trade Credit Insurance is a product that should be bought and not sold. It’s an insurance product that businesses really need to invest in and understand to reap the benefits of what the product has to offer.
As someone who has worked in the trade credit arena for 23 years, I have seen many of my Credit Insurance clients directly affected by the collapse of customers they deal with. The recent administration of building contractor ISG last year is one example where many of ISG’s smaller supply chain partners were adversely affected as ISG closed it doors. Thankfully, many of ISG’s customers were protected by Trade Credit Insurance. Though ISG customers with no insurance had to bear the brunt of major losses, which could in time lead to possible redundancies or even worse, failure of their own companies.
We, and the Trade Credit Insurance underwriters have the knowledge, expertise and experience to research and establish the financial strength of any business with which our clients wish to trade. We can then advise whether insurance cover would be available, or whether providing credit terms may not be the best option going forward.
I like to use the analogy of Trade Credit Insurance being like an umbrella, a shield preventing any bad debt from affecting your company.
A trade credit policy is a partnership between a business, their broker and their chosen insurer. We all work together to assess the risk of working with certain companies or suppliers. Once assessed, a specific level of cover can be agreed. Alternatively, if no cover can be agreed, an insight is provided into the company’s financial strength to provide financial guidance for future business with the company.
A trade credit policy is a two-way relationship between the insured and the insurer. I believe that company directors who have invested in it can see the benefits of it immediately. Having Trade Credit Insurance gives you access to a team of experts which enables SMEs to conduct financial due diligence without having to employ the in-house expertise.
Historically, the construction sector has been one of the main sectors that has used Trade Credit Insurance – in fact, figures show that 17% of businesses that have Trade Credit Insurance work in construction, yet the construction sector alone equates to 31% of claims made to insurers.
That said, more and more industries are now seeing the benefits of having the protection of a product like Trade Credit Insurance in their commercial armoury. Especially those in the haulage, manufacturing and recruitment sectors, as the margins in these industries can be tight and losses caused by non-payment can have a significant impact.
Trade Credit Insurance is a widely misunderstood product with many businesses believing that it’s too expensive and that it is a business prevention tool, rather than one that helps companies do business. In fact, it helps businesses grow with certainty, it helps them expand their reach, grow their market and do so with the peace of mind that the companies they are partnering with can and will pay for their services.
So as businesses around Wales and the rest of the UK feel the pinch, Trade Credit Insurance might not be the first thing on their list of priorities – it might not have even made the list – but I believe that it is a product that should be near the top of the list. It is that umbrella, that safety blanket, that due diligence team that might help you as a business owner make the best decision you’ve ever made or maybe stop you from making the worst.
Need Advice?
Our specialist team is here to help. Call us on 02920 853788 or email credit@thomas-carroll.co.uk to discuss how Trade Credit Insurance can protect your business.
