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Risk in Context

January Blues: Could Christmas Results Affect Credit Insurance?

Posted by Adam Forrester 11 January 2018

Results are beginning to emerge in the UK retail sector after one of the toughest-ever Christmas trading periods. It has been suggested that the winners will outweigh the losers, and certain UK retailers will see record sales from the month of December.

However, it has been a more disappointing trading period for some, with the troubles of high-street chains recently publicised in the media, amid a squeeze on consumers’ spending power, increased online competition, and reductions in footfall.

As a result of falling revenues and profit warnings, credit insurers are starting to reduce cover and halt the sale of protection against insolvency to the suppliers of certain retailers. A credit insurer’s decision can have major repercussions on both the retailer and suppliers. 

Without cover, retailers will struggle to buy critical supplies or could be forced to accept more arduous payment terms, such as upfront payments, putting greater strain on capital.  Insufficient cover is also detrimental to the supplier, as credit insurance protects them against the risk of a customer going bust during the period between an order being shipped and payment being made. If the customer files for insolvency, the supplier would be forced to write off a considerable amount of its current assets as bad debt. And the impact of bad debts on a business can be catastrophic, especially as uninsured account receivables often represent up to 40% of a company’s current assets.

Protecting Against Future Turbulence

Given these consequences, now is the time to check the levels of credit insurance in place to be prepared for unforeseen circumstances, such as a disappointing trading period. Credit insurance may seem like a box-ticking exercise and even financial burden, but it can also be effectively utilised to encourage business growth and development of trade into new areas.

Aside from fundamental balance sheet protection, credit insurance gives companies the confidence to expand sales into new and existing markets, while also benefiting from a credit insurer’s in-depth market and customer knowledge base. If credit risks are adequately covered, it enables increased funding levels and reduced borrowing rates from financial institutions.

By ensuring that sufficient credit insurance is in place, businesses are protecting themselves not only for the present, but for future market and economic turbulence.

Adam Forrester

Client Advisor