Growing your business in an unpredictable future
Using the word ‘unprecedented’ to describe the last two years has become something of a cliché but it is certainly true to say that between Brexit, political instability, pandemics and ships getting stuck in the Suez Canal - only the most psychically gifted of economic analysts could have predicted what 2020 and ’21 had in store!
The government’s packages of fiscal support helped many companies avoid going to the wall. Insolvencies were generally low in Northern Ireland in 2021, considering the extent of the economic shutdown.
However, as the covid pandemic rolls on and government support withdraws, the likelihood of more businesses facing difficulty increases. In fact, one leading insurance provider is predicting insolvencies to rise by as much as 33% in 2022.
This creates a huge additional risk for businesses of all sizes in Northern Ireland. With political upheaval, continuing freight challenges, labour shortages in key operational sectors AND the possibility of recurring lockdowns, how can local businesses plan for a future that is so difficult to predict?
One route many organisations have chosen to protect their business is Trade Credit Insurance.
What is Trade Credit Insurance?
This innovative insurance product, now available through ABL Group, can protect your business from the risk of non-payment or late payment of your invoices. Even extending to cover delays and non-payment due to political turmoil.
44% of all B2B sales in the UK were reported as overdue last year and a further 8% were declared as unrecoverable, so the risk is significant. With such choppy waters ahead, the problem is only growing.
Significant challenges for companies in 2022
There are many significant threats to companies in Northern Ireland that warrant proper consideration of an insurance product such as trade credit cover.
- Rising insolvency levels – With government support withdrawing and ‘Zombie’ companies on the rise (companies that generate just enough revenue to service their debt but will likely die when government supports stop), cash flow is going to be very challenging for all businesses during 2022. Protecting your account receivables, one of a business’s largest assets, will be paramount for survival this year.
Trade Credit Insurance can provide this security and enable business owners to avoid sleepless nights worrying about bad debt.
- Slow payment from customers - Just 48% of the total value of UK B2B sales was paid on time last year. Looking ahead, 39% of UK businesses expect it to take longer to collect payment this year with 39% anticipating an increase in the average DSO (days sales outstanding). These delays can make planning even more difficult for businesses with a fast-moving cash flow.
Trade Credit Insurance helps your company limit its exposure by paying out on late payments past an agreed threshold, giving you added confidence in cash flow forecasting.
- Additional Credit Control investment - To manage liquidity issues because of late payments, half of all businesses have increased the time, cost and resource to chase overdue invoices and 41% have strengthened their credit control procedures.
More than a quarter (28%) have had to pursue additional financing while 26% have subsequently had to delay paying their suppliers.
Opportunities for businesses with credit insurance
As well as the challenges ahead of us all in 2022, there are also significant opportunities for those who invest in Trade Credit Insurance.
- New business through more flexible credit terms - UK businesses conducted 53% of their B2B sales on credit over the last year and 50% of all businesses actually increased credit sales or extended their credit terms in the past 12 months. The majority did so to stimulate sales growth for repeat business and to win new customers.
The most common payment term for UK businesses is 30 days, reported by 78% of businesses surveyed. 12% set payment terms of 31-60 days, 7% ask for payment within 61-90 days and 3% offer terms of over 90 days.
With the aid of Credit Insurance, your business can be more competitive with credit terms offered, giving you an edge over your competition while reducing the risk of non-payment.
- Savings and efficiencies – in business, time is money and therefore your most precious commodity. UK businesses waste thousands of hours per year chasing bad debt and dealing with unpaid invoices. Trade Credit Insurance can help you uncover customers with greater credit risk, allowing you to deploy credit wisely.
Also, most credit insurers offer an integrated debt collection service and once debt passes an agreed period, it can be passed across to the insurer, freeing up resources that can be allocated to other areas of the business.
- Confidence to pursue new markets – one of the greatest challenges in entering a new market is not knowing the potential client base, their buying habits and their history.
Working with a credit insurer will give you access to accurate market intelligence and enhanced confidence in selling to previously unknown customers.
- New funding sources – Having a credit insurance policy in place allows lenders to forecast future revenue for your business with a greater degree of certainty and therefore increases your likelihood of getting funding and access to financial products others may not enjoy.
Access to favourable rates from lenders can make the difference between your business surviving and thriving in 2022.
- Digital transformation – The pandemic changed many aspects of UK businesses and some of those changes have stuck. The most noticeable change in the business world is the acceleration of digital transformation. Over half of all companies asked have made significant moves towards digitising their services, sales and processes.
Now the conceptual hurdle of remote working and selling digitally have been overcome, many companies are doubling down on the change by investing in automation services, more cost-efficient customer service processes and reducing their costs in their physical offices. However, this transformation requires investment and the ability to forecast cash flow, access new markets and new funding streams could make the difference between a successful digital transformation and one which gets stuck in the past.
Don’t leave it too late to chat with our team regarding your Trade Credit Insurance requirements. The insolvency of large companies such as construction firm Wildgoose will become more common. Wildgoose left 700 companies with unpaid bills, totalling £7.4 million in trade credit. Big crashes like this will result in a domino effect of insolvency that smart business owners will want to protect themselves from.
Contact Mark McAllister - Head of our Trade Credit Division via email at mark.mcallister@ablinsurance.co.uk or phone – 07467441974 for a quick no-obligation chat.
Mark can provide you with all your options, allowing you to make an informed decision to safeguard your business during this challenging period.