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How credit insurance can provide the vital business lifeline

Sometimes in business things don’t always work out. The accumulation of bad debt coupled with wider negative economic circumstances can speed up a collapse or closure, regardless of the perceived success of a business – which is where credit insurance can help, writes Nigel Birney, Head of Trade Credit Insurance, Willis Towers Watson

Often, this stressful event can put many entrepreneurs and former business owner managers off getting back into business for life. With over 80% of businesses in Northern Ireland in the SME bracket, this is worrying as they often don’t have the resources or a large financial buffer to help weather that final storm, effectively putting their lights out.

But some businesses and business owners do try to make a comeback. Those who are most resilient are smart enough not to be stung twice and will put all the protective measures available to them in place so that they never suffer the same failure as before.

Cashflow is the lifeblood of all businesses and previous business failure can often mean that access to finance for the new company to restart is less forthcoming and alternative sources are hard to come by. We usually find that this is a normal and understandable response from banks and other commercial funders as they don’t want to take on the risk of a repackaged new venture that has had legacy financial problems with cashflow and loan repayments. It’s a normal reaction, however, it does nothing for the previously scarred business owner who want to get back at it again.

One potential way access to funding can be secured is by taking out credit insurance to improve the credit risk management process. Having your sales ledger protected through credit insurance can provide additional security and reassurance for a bank or financial institution, especially if you want to trade in export markets. Having a strong level of protection in place against bad debt, unlike the previous catastrophic period, provides financial protection and very significant market intelligence on prospective and existing customers, therefore enabling better informed commercial decisions.

Credit insurance gives a financial institution the comfort that you have created a safety net for yourself and your business by putting appropriate and robust risk management procedures in place. Not only that, but suppliers who supply goods, products and raw materials to your business can also feel reassured knowing that you have taken the necessary steps to future proof the financial integrity of your company and that they have a better chance of getting paid and getting paid on time.

Credit insurance also assists significantly in the safe growth of a business by enabling  access to real time information on the financial health of your customer or prospective customer, which allows you to trade with confidence knowing that should an unforeseen bad debt occur, your business will not be adversely affected.

Most of the major credit insurance underwriters also provide a fully integrated international debt collection service. This is particularly useful if you are exporting and require assistance to collect an overdue debt from an overseas buyer as it is extremely unlikely that a local solicitor or debt collection company could assist with collecting a debt or taking legal action to recover a debt in a foreign jurisdiction.

A failed business venture can be bitterly disappointing, especially when it’s through no fault of your own. But it shouldn’t deter many from bouncing back better and stronger than ever. There are lifelines and guidance out there for business owners to protect themselves from being burned again. Credit insurance is one vital way of shielding small businesses from harm in the future and gives business owners (and banks and other lenders) confidence that they will be secure going forward.