This article originally appeared in the summer 2018 edition of Telegraph magazine. Read it online now.
Laurence Hill takes a look back over the first half of 2018 and reflects on the shifting economic landscape.
More than six months have elapsed since Carillion ceased trading and the UK is still reeling from its demise. Although investigations into the failure of the contracting giant are ongoing, more than 2,300 people have lost their jobs to date, and the Association of British Insurers (ABI) predict that there will be at least £31m-worth of claims as suppliers and contractors seek to recoup their losses.
But Carillion’s not the only big-name business to have gone under in the past six months. Since January, several companies, including Toys R Us, Multiyork, Maplin, Monarch Airlines and Palmer & Harvey, have become insolvent, causing widespread disruption.
At the time of writing, Carpetright, Mothercare, New Look and House of Fraser have entered a form of insolvency, known as a CVA, while Wickes is experiencing financial difficulties.
Consequently, the Federation of Small Business (FSB) has called into question the use of the Prompt Payment Code, stating that it isn’t stringent enough; some suppliers have to wait up to 120 days to be paid what they are owed.
On top of that, more than 30% of payments are typically late and the average value of each late payment is £6,142.
According to FSB figures from 2016, late payments cost the UK economy £2.5bn and causes 50,000 small businesses to permanently close their doors.
PROTECTION FOR TROUBLED TIMES
So what can business owners do to safeguard their own cash flow, without being negatively affected by the difficulties of their customers?
Trade credit insurance is a vital consideration. It is a way of moving the risks away from your business and over to an insurer, even if you’re trading internationally.
For instance, if a customer goes bust, an insolvency practitioner will get in touch to explain what’s happening, allowing you to make a claim for outstanding payments. This also applies if a customer defaults on an invoice and, depending on your policy, you could make a claim even though your customer hasn’t gone bust, so your cash flow remains healthy.
In cases like this, it’s also worth considering dispute cover. This allows you to make a claim, even if you’re taking legal action to pursue the late payment and the customer disputes the invoice. The insurer will often seek to recover the debt once the dispute has been resolved.
But the cover can also help you before you have to make a claim. Credit insurers have access to large databases of financial information so they can help you set credit limits and minimise your risk. The insurer will monitor the situation and alert you to any changes to your customers’ risk profiles.
As a policyholder, you could even request a credit check on a customer before you arrange payment terms. Your insurer would assess the risk and send back a decision on the levels of credit you
should extend. It may not be what you hoped for, but you’re able to minimise the risk of late payment or insolvency.
At S-Tech (part of Alan Boswell Group) we’ve worked with leading credit insurers for decades. Our experience can help you to arrange cover for your risks in turbulent times. Call me direct on 01603 967960 to discuss your exposure to credit risks.
Laurence Hill is a Director at S-Tech.