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Rising Credit Risks Warning

Rising Credit Risks Warning

Ratings agency Moody’s has given a stark warning that the UK should anticipate a rise in credit risks given the prospect of an unwinding of the level of government fiscal support measures.

It adds that weak earnings and solvency concerns will weigh hard on hard-hit companies, while higher debt levels will erode the positive effects of low interest rates on debt-servicing capacity.

The latest report from R3, the insolvency and restructuring trade body, shows that corporate insolvencies are on the rise again increasing by 37.8% to 1,228 in December 2020 compared to November’s figure of 1,125.

Late credit payments and how to protect your Business

Late payments are a sign that a customer may have a problem and for many they become accepted as another operating cost. Big businesses incorporate automation, prediction, advanced analytics and artificial intelligence into their management tools to identify the risk.

However, many SMEs will be relying on looking at the debtor ledger to identify late payers, and may not be looking at their industry, trends and other signals that indicate business creditworthiness. What are the tools at their disposal?

Get to know the customer. Understand the business sector, risk level and what credit terms have been offered.

  • Manage cash flow. Review payment schedules with key customers. Potentially agree price discounts with large firms in an effort to reduce their 60/90 day credit terms to achieve better cashflow despite discounting.
  • Invoice correctly and promptly. Dating invoices on the first day of the month can often turn a 30-day invoice into 60 days. Understanding how a customer pays and bill them accordingly. Maintain customer documentation and ensure the details are correct. If a customer has a vendor portal, log in and check invoice status frequently. Chase payment regularly. Chasing payment helps keep your business front. It adds that weak earnings and solvency concerns will weigh hard on hard-hit companies, while higher debt levels will erode the positive effects of low interest rates on debt-servicing capacity. The latest report from R3, the insolvency and restructuring trade body, shows that corporate insolvencies are on the rise again increasing by 37.8% to 1,228 in December 2020 compared to November’s figure of 1,125. Late payments and how to protect your business. Late payments are a sign that a customer may have a problem and for many they become accepted as another operating cost. Big businesses incorporate automation, prediction, advanced analytics and artificial intelligence into their management tools to identify the risk. However, many SMEs will be relying on looking at the debtor ledger to identify late payers, and may not be looking at their of mind and build relationships with accounts payable teams. When they get to know a vendor, accounts payable staff can be empathetic, helpful and loyal when they know how a business operates.
  • Outsource debt collection. Invoice financing or factoring is an option if a business doesn’t have internal resource, but it can be costly.
  • Get trade credit insurance. Trade credit insurance provides cover for businesses if customers who owe money for products or services do not pay their debt or pay them later than payment terms. This could be caused by customer bankruptcy, political risk or other reasons. It gives businesses the confidence to extend credit to new customers and improves access to funding. There will be a number of trade credit options to suit businesses and customers. Trade credit insurers review and report on risk by business sector right down to individual customer level.

If you would like to know more about how to protect your business against corporate insolvencies, liquidations or bad debt talk to your Towergate Insurance Brokers adviser or you can speak directly to our experienced credit specialists on 0748 4072 790.

 

 

Mark Brannon Cert CII, commercial, sales, broking and client directorAbout the author

Mark Brannon Cert CII is a respected industry leader with over 17 years’ industry experience in a variety of roles within the business insurance sector. He works across a wide spectrum of insurance product and policy development, delivery and optimisation for clients, including claims, insurer relationships, marketing and communications, and risk management.

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The information contained in this bulletin is based on sources that we believe are reliable and should be understood as general risk management and insurance information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such. If you wish to discuss your specific requirements, please do not hesitate to contact your usual Towergate Insurance Brokers adviser.