Businesses losing out when credit is due

The Insolvency Service has recently revealed that corporate receivership has increased more than 15 per cent in the last year, resulting in more businesses at risk to loss because of clients not paying their debts.

And recent research has shown 60 per cent of the UK’s 1.6 million SMEs admits being affected by late payment.

John Isles of Rowland and Hames says that bad debt could be fatal to businesses without credit insurance.

He said: “As the old saying goes, the only good client is a paying client. There are a host of reasons for non-payment, some simple, some more complex. Whatever the reasons, bad debt could place a business in serious jeopardy and we have already seen a number of cases where companies have ceased operations because of bad debts.

“Whilst the majority of firms insure their physical assets, surprisingly few, only around 5 per cent, consider protecting their biggest asset, their invoiced debtors. This makes up approximately 40 per cent of a firm’s total assets and shows exactly why the need for credit insurance is vital to protect a firm’s profit margins.”

Credit insurance provides a business with protection against a failure of a customer to pay their trade credit debts, often because a company has become insolvent or fails to pay on an agreed timescale.

John Isles further highlights that businesses failing to collect money from invoiced debtors can lead to problems with cash flow, reduced competitiveness and the possibility of collection and legal costs if they pursue legal action.

He added: ““Credit insurance provides an early warning that a customer is in financial difficulty, allowing a company time to withdraw from the relationship on a structured basis, reducing exposure gradually. It also has a positive impact on a balance sheet by reducing a company’s bad debt provision, thereby releasing tied-up capital that can be invested elsewhere.”