The Times article ‘Increased strain on supply chain highlighted by insurance payouts’ (16th March 2018) focuses on payments made by Credit Insurers in 2017, equating to £4.3 million per week.
Figures supplied by the Association of British Insurers (ABI) for 2017, demonstrated a 7% increase on 2016 and the highest since 2009. Last year saw 11,017 claims corresponding to 212 businesses calling on trade credit insurance each week. Currently the level of trade covered by credit insurance in the UK is poised at £340 billion, again up 7% on 2016. Claim value in the last quarter of last year at £130 million was the highest quarterly figure since the first 3 months of 2009. Overall, the figures show a trend which will either meet or exceed the situation experienced nine years ago.
Market experts deem the increase in claims represents the continued intensifying pressure on supply chains. This rise includes the first annual increase in corporate insolvencies since the financial crisis such as Monarch, Jaeger and Palmer and Harvey. These ABI figures have yet to take into consideration, Toy’s R Us, Carillion and Maplin.
Independent research shows small and medium-sized companies have had to take out £31.5 billion in funding to cover the chasm between due date and actual payment created by slow and late paying customers. A study by Previse, a supply chain finance company, explained one in five businesses experience 90 days or more for invoices to be settled with slow payment resulting in three quarters encountering strain on their cash flow.
Trade credit insurer, Euler Hermes, forewarns Britain is facing the second largest increase in business failures of any leading global economy this year.
So is the removal of credit insurance cover the straw which breaks the backs of these companies?
The media have frequently vilified credit insurance companies for pulling the last strands of a rug from beneath companies in difficulty. Reduction or removal of cover by credit insurance companies can at times be contentious, however credit insurance is there to protect suppliers with both information and cover, from the situation evolving behind closed doors. The credit insurer’s notification of reduction or removal of cover is often the red flag to companies to review their interaction and provision to a company demonstrating difficulties. It is then up to each individual business to decide to continue to trade, reduce or stop delivery of goods or services once cover is removed. However, in the event of a failure, credit insurance is there to support the supplier up to the point of removal, against bad debt.
Mark Shepherd, ABI’s assistant director states the recent failures significantly “highlight the value of trade credit insurance”.
Trade Credit Insurance protects businesses from bad debts caused by the insolvency or default of a business customer. As specialist brokers, Acumen can arrange bespoke credit insurance policies to suit your business and trade sector so, if your business it at risk of being yet another victim of business failure, contact us today.