Why SMEs need trade credit insurance

Credit insurance Atradius

Small businesses face unique challenges around managing cashflow and protecting themselves against insolvency. For a small business, it can take just a single customer failing to pay to create a significant cashflow crisis.

Furthermore, many small-business owners manage the accounts themselves or they get a family member or spouse to manage the books. This arrangement can be perfect as long as customers pay on time. However, when they have to chase late or unpaid accounts, it can be hard for these business owners to make time.

Depending on how liquid your business is, late or unpaid payments can cripple a business and damage relationships with other trading partners as you find yourself unable to meet your own debt obligations. Trade credit insurance can act as a buffer when your customers don’t pay. It can make up the shortfall so you can still make the payments required to keep your business operating even if your customers have let you down.

Having a policy also helps you make smarter decisions about who you do business with and under what terms. It can help identify at-risk customers so you can avoid offering them items on credit, which increases your risk of non-payment. Armed with reliable information regarding which customers are likely to pay versus those likely to default, you can trade with more confidence and success. In addition, trade credit insurance can help you access more favourable borrowing terms, which can give your business more opportunities to innovate and expand.

You should get ahead of the curve now so you can avoid going out of business due to bad debt. Securing you cashflow means you can innovate to stay ahead of the competition and remain viable even if the market tightens.

There are five reasons to get a trade credit insurance in order at the start of a new year:

1. Manage cashflow for peace of mind: if your cashflow is interrupted, it could mean that your staff can’t be paid, new stock can’t be purchased, and your business may grind to a halt. Credit insurance means you have a safety net that lets you trade confidently in the face of slow payment.

2. Flexible payment terms: credit insurance can provide a financial buffer zone so your business can be more flexible with terms of trade and extend the payment period if needed.

3. Increase credit lines: credit insurance can enhance the value of a business’s debtor portfolio, meaning that trade financiers are more likely to offer increased lines of credit. This can lower the cost of borrowing and broaden the scope of the business.

4. Reduce exposure to risks: the average business receivables asset makes up about 30 to 40 per cent of the ledger, meaning that without appropriate credit insurance, your business is exposed to significant risks.

5. Gain insight: a good trade credit insurer will add value to your business by acting as your eyes and ears on the ground, checking that prospective customers’ stability, creditworthiness, and market reputations meet the required standards. This can give your business more valuable insight than a cursory review may reveal, and help you be better informed to make strategic business decisions.

Mark Hoppe, Managing Director – ANZ, Atradius