How Trade Credit Insurance can help your business manage risk

With the ongoing impact of the COVID-19 pandemic on businesses, we are seeing a significant rise in debts and insolvencies. Trade Credit Insurance cover is more important than ever, giving businesses confidence to extend credit to new customers and improved access to funding.

Government Statistics

The insolvency statistics provided by the Government* show the number of registered company insolvencies in August 2021 was 1,348; 71% higher than the number registered in the same month in the previous year, and similar to the number registered two years previously pre-pandemic in August 2019.

In August 2021 there were 1,256 Creditors’ Voluntary Liquidations (CVLs), which is the highest level seen in the series since January 2019. The number of registered company insolvencies was similar to pre-pandemic levels, driven by a higher number of CVLs, although other types of company insolvencies, such as compulsory liquidations, remained lower.

During the Coronavirus pandemic, overall numbers of company insolvencies have remained low when compared with pre-pandemic levels. While CVL numbers have now returned to pre-pandemic levels, numbers for other insolvency procedures, such as compulsory liquidations, remain lower. This is likely to be partly driven by government measures put in place to support businesses during the pandemic, including the temporary restrictions on the use of statutory demands and certain winding-up petitions and enhanced government financial support for companies.

Iain commented: “We understand the challenges and risks that businesses face, even more so in the current economic climate. We are committed to supporting businesses, helping our clients protect their largest asset whilst encouraging growth”

As these measures come to an end it might be reasonable to assume that we will start to see compulsory insolvencies increase, with some forecasters predicting a rise in corporate insolvencies in the UK of 20% or more over 2019 figures. The difficulty is forecasting the extent of the increase – whether it will be high tide, a storm, or a tsunami. Unlike other post-recessionary recoveries, the availability of government funding has masked the lack of liquidity and the new breed of “zombie” businesses reliant on government support. The withdrawal of this support and the spectre of increased interest rates to quell inflation will reveal many corporates lacking the cashflow to repay loans or unable to borrow sufficiently to cover the lack of working capital.

The lower than forecast insolvencies in 2020 have left insurers in a strong position and government support for the industry meant that most could maintain high levels of cover throughout lockdown. This means there is real appetite to take on new business to both support growth and protect profitability.

Why Trade Credit Insurance is important

By assessing and monitoring your customers, both existing and new, credit insurance allows you to focus your sales and growth with new customers or in new territories, knowing that they can and will pay you.

Collection services provided by many insurers help speed up payment from delinquent customers and in the event of a loss, 90% of your lost cashflow can be replaced, in many cases within 30 days of a loss, providing valuable security for this most critical asset of your business.

If you would like to find out more about our Trade Credit and Surety solutions contact Iain Gunn, Senior Account Executive, TradeRisk Solutions, or call Iain direct on 0203 961 7633.

* https://www.gov.uk/government/statistics/monthly-insolvency-statistics-august-2021

21.10.21