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Good Protection From Bad Debt: 10 Fast Facts About Credit Risk and Trade Credit Insurance

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  1. Arrium Mining and Dick Smith Electronics were two of the largest collapses in 2016. Both ASX listed and well established businesses. There is no certainty in size or reputation. Other well known brands that went into insolvency recently include: Payless shoes, Herringbone, Marcs, Huxley Homes, Howards Storage, BLK, Pie Face, Keystone and many more.
  2. Both the Retail Industry and Construction Industry are flagged by trade credit insurers as growing risks in the next 2 years. Mining continues to be volatile in some sectors. Facing Retail is the impending arrival of Amazon and other online competitors that are challenging traditional bricks and mortar brands. The margins on construction projects are becoming finer with concerns about the potential of flattening real estate markets, tightening of project lending and a large volume of new units to hit the South East Queensland and Sydney markets in 2017-18.
  3. Construction is the industry with the highest number of insolvencies per year.
  4. The average business receivables asset is around 30% to 40% of the company ledger which means without credit insurance, you are exposing your company to enormous risks.
  5. Trade Credit Insurance will insure up to 90% of a bad debt. E.g. $1,000,000 loss the insurer will pay $900,000 minus any excess.
  6. Most Trade Credit Insurance policies include as part of the policy Debt Recovery/Collection Costs.
  7. Trade Credit Insurance can assist in growing your business. A new buyer can approach you for a $500,000 limit. With little to no knowledge of the buyer other than their ACN you can contact your insurer to get a decision. If the insurers check’s come back ok you are able to accept the new buyer and trade debt with greater confidence and less risk.
  8. A policy may improve your banking arrangements such as factoring costs.
  9. When dealing with overseas buyers risks and mechanisms to collect may vary significantly. With most Trade Credit insurers being global companies they are comfortable with overseas buyers being insured under the policy.
  10. Trade Credit Insurance can be tailored to include coverage for when your exposures are pre-credit such as when you take an order which will take 3 months to fill. If the buyer goes insolvent before delivery the insurance can protect the loss when you still have the order on hand but unable to be resold.

Peters & Partners works in conjunction with Finsura Corporate Trade Credit division to improve trade credit practices and risk management for businesses. Speak to a Peters & Partners account manager about how they can improve your internal process and risk management. To learn more about Trade Credit Insurance and to arrange a policy pricing indication and advice you can contact myself Geoff Doyle from www.finsura-corporate.com.au on Ph: 8397 8222 geoffd@finsura.com.au .