Be Prepared: Tougher Trading Conditions are Leading to a Rise in Trade Credit Claims
The UK trading environment is becoming tougher and as a result, Marsh UK saw a sharp rise in the number of trade credit insurance claims in 2018 – up 40% on 2017, most notably in the retail and construction sectors. Some insurers are reporting similar experiences and recently the UK Government Insolvency Service stated that: “The underlying number of insolvencies (excluding bulk insolvencies) increased in Q1 2018 to the highest quarterly level since Q1 2014. This was driven by a rise in underlying creditors’ voluntary liquidations, and compulsory liquidations.”
Brexit uncertainty and continued economic volatility mean that the environment is likely to remain tough for some time.
Trade credit insurance is a vital tool to guard against the risk of customers being unable to pay for goods and services. In uncertain economic times and with claims on the up, we expect insurers to start examining claims more closely, and foresee the potential for more claims to be rejected. We expect that claims will likely come under much greater scrutiny and strongly recommend that companies adhere to the terms and conditions of your policies.
There are several major reasons why trade credit claims may be rejected, but if you properly follow your policy terms, it will help to ensure that all claims are settled promptly and in full in line with the terms and conditions.
As well as factors such as non-disclosure of material facts or failure to submit claims on time, in our experience the most frequent reasons for insurers to potentially reject claims are:
● Credit limit issues, a lack of justification or no credit limit.
● Failure to report, or late reporting, of an account which has breached reporting requirements or the maximum extension period.
● Delivery of goods after the maximum extension period or stop shipment have expired or been applied.
Download our adviser for a more comprehensive list of trade credit claim rejection reasons. These situations are easily avoidable if you adhere to the terms of your trade credit policies, and work with your broker to understand and follow the compliance requirements of your policies.
If you are a creditor of a company that goes into administration, trade credit insurers will expect prudence and for you to have taken the necessary steps to minimise losses. Contact the Administrator as soon as details are announced to expedite your claim – we have put together some advice on this subject, which is valid for both credit insured and non-credit insured suppliers.
Constant uncertainty and concerns about a “no-deal Brexit” have led to speculation and stockpiling of certain goods – another issue to be aware of, and one which we explored in an earlier blog. Against this backdrop, it is vital that suppliers ensure they have risk management in place to protect them against non-payment.
These are uncertain and unprecedented times but trade credit insurance remains a valuable tool to ensure that you are adequately prepared.