Debt recovery blog – Trade credit insurers still cautious of SMEs

While the market for trade credit insurance continues to remain competitive for large corporate businesses the prospects for many SME’s are not so rosy.

Trade credit insurance is often used to reduce the impact of bad debt and other commercial debts crippling or adversely affecting a supplying business. Large corporate firms have a wider risk spread in so much as the customer base, its resultant sales and therefore the incidence of bad debt is spread much wider, whereas SME’s typically have smaller customer bases and as such, a higher risk concentration and likely fallout if their customers become bad debtors.

So whilst the market remains competitive for large corporate businesses, with an influx of new players and additional capacity in the market, many insurers are still exercising caution when evaluating proposals from small and medium-sized (SME) firms.

On the whole SME’s are finding it increasingly tough to acquire a competitive trade credit insurance but certain SME sectors are all but priced out and in particular, many operating in the timber, construction and non-food retail sectors continue to be perceived as ‘high risk’ by trade credit insurers and many are paying far higher  premiums as a result.

Whilst trade credit insurance and risk management are vital protection mechanisms for the UK’s small and medium sized businesses, the trade credit insurance market is nonetheless an insurance market and as insurers they have sought to reduce their risk exposures in the worst-affected sectors to safeguard their own business.

With September being a month in which quarterly rents are due, the predictions are that the retail sector will see more insolvencies through October as the deadline arrives for rent due dates, on the back of an already challenging retail quarter.

The run up to Christmas probably cant come soon enough for many in the retail sector but all signs point to the continued conditions being less than favourable and challenging to say the least.

Insolvency levels have reduced in recent months, but the trade credit insurance markets are clearly still worried about the retail sector and whether their price hikes for those operating in the sector, and not just retailers, but suppliers to and distributers of retailers, are some what prophetic of some impending action, is something that is being hotly debated.

Insolvency can devastate many businesses supplying to those who go under but preparation for such an event is not solely in the hands of trade credit insurance. Although valuable, as the blog post points out, its pricing can vary, especially for SME’s and even when in place, its use is not a get out of jail free card as measures both precautionary and reactive, need to be aligned and put in place before debt goes bad.

If you want some advice on how to better protect your business from late payments, commercial debts, bad debt and customer insolvency simply get in touch with Liverpool Debt Recovery specialist CCDR and we can develop a suitable plan for you to manage everything from outsourced credit control through to debt collection and debt recovery or assisting you with debt mediation and/or dispute resolution.

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