Protecting your business when selling goods and services on credit terms

The role of Trade Credit Insurance has become more critical in the current business environment which has been significantly impacted by the COVID-19 pandemic. Economic growth has been severely reduced given the spread of COVID-19 resulting in enforced government shutdowns impacting a diverse range of businesses.

Many businesses have not survived or reduced their activities due to shutdowns or stringent lockdowns. Mandatory shutdowns forced by quarantine requirements due to health control can be disruptive and exacerbate the level of confidence in the business environment.

Trade credit insurance can be a useful business tool in these current economic times. It is prudent for businesses to protect their balance sheets, trade debtors and receivables in the ordinary course, however COVID-19 presents greater risk.

Insurance protection has many advantages for businesses including, minimising the adverse impact of debts going bad, ensuring your working capital for funding operations is at an optimal level and can assist with the continued survival of your business.

Trade debtors or accounts receivable can become a substantial portion of working capital, as business’ supply goods or services in credit terms. Receiving amounts outstanding can become problematic during this current economic environment and if debts are not effectively managed, they can easily become ‘bad’ and perhaps unrecoverable. This in turn, will negatively impact on your company liquidity.

Trade credit insurance can protect your business’ trade debtors or accounts receivables and ensure payment for these goods and services that were supplied on credit terms. The Bellrock Team can assist you negotiate viable alternatives tailored for your business.

The benefits of trade credit insurance include:

  • reducing the cost of provisioning against bad debts as any non-payment is covered by insurance. Also, volatility on your business’ profit and loss results can be reduced as there is certainty with debt recovery and protection against receivables going bad and unrecoverable;

  • protecting your business profits against high levels of provisioning and debts written off as unrecoverable. This can positively impact on your business’ balance and shareholder equity;

  • collating specific buyer information which can assist your business in identifying the buyers economic “health”, undertake effective strategic planning and monitor its ongoing credit risk;

  • providing additional information on the security of your business’ suppliers and financiers;

  • establishing an objective risk assessment of your business’ major trade debtors; and,

  • enhancing your business’ internal credit management procedures through a disciplined continuous improvement process.