Why small retail suppliers should consider credit insurance

Recent retail collapses such as Mr Dick Smith and Ms Laura Ashley have highlighted the need for retail suppliers to consider credit insurance.

Small retail suppliers are particularly vulnerable to bad debt. Unlike large suppliers who may have several clients simultaneously, smaller businesses face serious cashflow problems if a client doesn’t pay for goods on time. Credit insurance can give small retail suppliers the reassurance to continue trading when cash flow falters.

Experts have warned that these high-profile collapses may be the start of a broader retail industry slowdown. The end of the resources boom, and increased competition from overseas and online competitors have made it difficult for retailers to compete effectively. The Australian Securities and Investment Commission’s September 2015 quarterly statistics revealed that insolvencies had increased by almost 10 per cent compared to the previous quarter.

When consumers stop spending money, it’s a sign of uncertainty in the economy. Declining consumer demand can cause retailers to stall on payments, which can leave suppliers vulnerable to sufficient cashflow.

If suppliers sell to retailers on credit terms, they risk their goods not being paid for in a timely fashion, and they can end up going down along with the retailer through bad debts.

For this reason, it’s essential that retail suppliers take out credit insurance. This protects the company against risks that could otherwise cripple the business. Credit insurance can help cover the shortfall from companies that don’t pay at all, or pay late.

Credit insurance covers losses that aren’t the customer’s fault but result in non-payment. This can deliver a number of benefits that can suppliers continue trading confidently. For example, it reduces the company’s exposure to risk and decreases uncollectible account expenses.

Many small supplier business owners manage their own invoicing and accounts, which can increase the fallout in the event of non-payment or late-payment. Smaller businesses may not have as much continuous oversight of finances as companies with a dedicated accounts department. This can diminish the financial buffer zone needed to pay workers, contractors, and manufacturers.

Credit insurance can also lower the cost of borrowing, letting suppliers widen their scope of business and improve cashflow for peace of mind. It takes away unnecessary worry about customers paying on time and lets the business keep its payment schedules on track.

Tough times may be ahead for retail suppliers. These organisations should get ahead of the curve now so they can avoid going out of business due to bad debt. Securing their cashflow means suppliers can innovate to stay ahead of the competition and remain viable even as the market tightens.

Mark Hoppe, Managing Director – ANZ, Atradius

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