Trade Credit Insurance Claims up 23% - Why is Insolvency on the Rise?
Discover why trade credit insurance is vital in today's economy. Learn how to protect your business from rising insolvencies and secure your financial future.
What would you do if you sent out a large invoice to a new or existing client and everything seemed set for a significant boost in revenue - but then, out of the blue, that client becomes insolvent, leaving you with an unpaid invoice and a gaping hole in your cash flow?
Unfortunately, this is an increasingly likely scenario for many businesses today.
In the first half of 2023 alone, trade credit insurance pay-outs surged by a staggering 23% compared to the same timeframe in 2022, covering £101 million in unpaid invoices.
This sharp increase is a clear warning: the threat of customer insolvency is growing, and it’s not going away anytime soon.
With company defaults expected to rise even further in 2024, businesses like yours need to take proactive measures to protect themselves against these risks.
In this blog, we explore the underlying causes of the rise in insolvencies and trade credit insurance claims and why securing trade credit insurance is essential for protecting your business in these challenging times.
Why are insolvency rates going up?
We’ve seen the statistics, but what is causing this alarming trend?
A dangerous combination of high interest rates, a sluggish economy, and the lingering aftershock of the pandemic are pushing businesses to the brink.
The Bank of England’s significant interest rate hikes, designed to combat inflation, have sharply increased borrowing costs, hitting particularly hard on businesses that took on debt during the pandemic.
This, coupled with a slowing economy due to weak GDP growth, reduced customer demands because of the cost-of-living crisis, and the end of pandemic-era support has left many companies on shaky ground.
The situation is especially precarious in sectors like hospitality, retail and construction, where reduced consumer spending, rising costs and ongoing supply chain disruption are driving up insolvency rates.
The UK is now on track to see around 7,000 business insolvencies per quarter through 2024 – a daunting figure that should be a wake-up call for any business owner.
Why is trade credit insurance essential for growing SMEs in 2024?
Trade credit insurance (TCI) is a policy designed to protect your business against the risk of non-payment from clients you have offered trade credit to. It covers the value of your outstanding invoices, ensuring that your business won’t be left vulnerable to significant financial loss if a client defaults or declares bankruptcy.
The Association of British Insurers (ABI) has stressed the importance of TCI, as recent government figures have revealed that insolvencies in England and Wales have reached their highest levels since 2009.
Even if your business has never had a customer become insolvent, or you’ve never experienced bad debts, this does not mean that it won’t happen.
With insolvency rates on the rise, it’s only a matter of time before one of your clients fails to pay, and your cash flow is interrupted. Can your business tolerate a significant loss in revenue?
Trade credit insurance is essential for ensuring that your business is protected from the financial fallout of client insolvencies. The data shows a frightening trend which is showing no signs of slowing.
Shield your business from client insolvency with trade credit insurance from PIB Insurance Brokers
The rising threat of insolvency will likely impact your business at any moment. Don’t wait until it’s too late to protect your business from customer insolvency.
At PIB Insurance Brokers, we are market leaders in providing flexible, bespoke trade credit insurance solutions, with policies designed to cover anywhere from 75-95% of your invoice sums.
When you partner with us, we don’t just connect you with insurers, we become an extension of your team. Our people-first consultancy approach means we work tirelessly to find the best cover available, tailored specifically to your unique needs.
If you have any further questions about how TCI can help your business, don’t hesitate to contact our expert team today.