Protecting Against Credit Risk

Low interest rates in the UK have become a fact of life since the onset of the credit crunch in 2008.

They are a nightmare for savers but a boon for borrowers, although the latter may have become over reliant on rock-bottom rates.

We know they will rise again in the future, although not when, and most of the focus has been on what will happen to mortgage borrowers when that happens. However, there is concern in some quarters that a potential interest rate rise could also create a surge in corporate insolvencies.

It is against this backdrop that more UK firms are using trade credit insurance, which protects balance sheets against credit risk such as protracted default, insolvency or bankruptcy.

Many organisations are more risk averse as a result of the recession and are acutely aware that even a slight increase in bad debt and interest rates could derail their firm’s recovery as the economic outlook improves.

Recent research by R3, the insolvency trade body, indicates that while the majority of UK organisations are now optimistic about the economic outlook, 11% of firms are regularly using their maximum overdraft, representing an increase of one percentage point since October 2013. It is this which is fuelling concerns about the risk of a company’s trading partner going bankrupt.

Many firms are naturally anxious about the impact an interest rate rise might have on their trading partners. However, identifying those who might be susceptible amongst their client base and in their supply chains is a major challenge. This puts those firms that are working hard towards achieving growth and profitability in a vulnerable position.

In addition to providing protection against trade debt, trade credit insurance can give companies an added element of credit management discipline and customer insight. As well as providing protection, trade credit insurers will be able to assess the creditworthiness of trading partners and suppliers.

For more information on trade credit insurance please contact Jason Reynolds 0114 280 2830