Protecting Your Business Should Be Top of Your Agenda

By 12.20.22April 11th, 2023No Comments
Protecting Your Business Should Be Top of Your Agenda

The UK economic outlook remains uncertain.  Despite narrowly avoiding a recession in 2023, the outlook remains challenging.  Experience tells us that this outlook is one to plan for if business owners are to give their businesses the best chance of coming out unscathed.

There is no doubt that UK businesses face a difficult period ahead.  A recent small business monitor found that challenges remained for SMEs.  Whilst the impact of Covid-19 has continued to wane, SMEs saw increasing costs and the current economic climate as key challenges, alongside a tighter labour market and the new trading arrangements with the EU.

Late Payment challenge remains

With those challenges come the ever-present issue of late payments which are also on the rise.  When cashflow dries up some firms prefer to hold on to cash and leave paying their creditors until as late as they can.  This can have a damaging effect on small businesses, and it comes at a critical time as they struggle with rising input costs whilst households tighten their belts due to soaring living costs and income becomes difficult to achieve.  With payments being made on average 8.2 days late, the UK small business population is already feeling the squeeze.  It’s critical that they are paid on time so they can manage their cashflow and handle rising costs.

Insolvencies up by 40%

The knock-on effect of the economic downturn and late payments will inevitably influence the number of insolvencies we see which are already on the increase.  In Q3 2022 the number of insolvencies increased by 40% year-on-year as businesses weather increasingly challenging economic conditions. There were 5,595 company insolvencies in Q3 2022 of which small businesses accounted for the overwhelming majority.

Those sectors working to tight margins with fixed price contracts are being severely impacted by the rising costs of raw materials, energy costs and labour which can quickly make contracts loss-making.  Whilst the retail sector is experiencing a squeeze at both ends as the falling value of the pound is increasing the costs of imports whilst consumers are tightening their purse strings over concerns of cost-of-living crisis and the ongoing economic challenges.

Looking forward, companies need to act now to preserve cash and ensure their businesses are prepared for the bumps that lie ahead.  Working capital, needs to be carefully managed to ensure firms have available cash when they need it. Most importantly, businesses should engage early and proactively with their shareholders, lenders, landlords and suppliers when they need to support, allowing time for an agreement to be reached if required. 

Credit Insurance – protecting your business

Trade Credit Insurance is a popular way of protecting your business from payment defaults with 16% of global trade currently protected in this way. Trade credit insurance helps businesses to safely sell more to existing customers or expand their reach to new customers, who may otherwise have been deemed too risky, knowing they are insured should the customer not pay their debts.

Recent figures from Berne Unions latest Business Confidence Index for Q2 2022 revealed that with a substantial rise in demand for trade credit insurance in Q1 2022, trade credit insurance underwriters are tightening their risk appetite in response to emerging claims, inflationary pressures, geopolitical tensions and an upward trend in corporate bankruptcies.  In 2021, International Credit Insurance and Surety Association (ICISA) members paid out €1.6 bn in trade credit insurance claims which although a reduction on 2020 figures they anticipate a rise in claims in the coming months.

There is no denying that we are in a turbulent time.  With political and economic uncertainty reigning, business confidence is being knocked and we will see a rise in insolvencies, payment defaults and late payment.

Transferring risk away from the business and over to an insurer, credit insurance protects the policyholder in the event of a customer becoming insolvent or failing to pay its trade credit debts. Not only this, but insurers can help to reduce the risk of financial loss through credit management support.

The 6 ways Trade Credit Insurance could benefit your business

  1. Protect your cash flow: Your policy will provide cover for payment default, ensuring minimal disruption to your cashflow.
  2. Confidence: Enables businesses to diversify or grow beyond their traditional markets.
  3. Easier access to finance: If you need to obtain finance to improve your working capital position you can assign the policy to your financier to give them the assurance their investment is safe. It can also lead to increased levels of funding.
  4. Increased revenue: Trade credit insurance removes the risk of non-payment (default) from your sales invoices. This allows you to offer extended credit terms to your customers which can increase revenue and profit.
  5. Early warning: Gain access to credit information which can alert you to high-risk companies before you expose your company to unnecessary risk.
  6. Reduce bad debt reserves: Free up cash reserves that are allocated to paying off bad debt. Credit

A sensible solution in uncertain times?

Definitely.  But businesses need to consider what else they can do if insurers continue to tighten their credit policy making it impossible to get cover or they increase their prices when costs are already rising to reflect their risk.    So, what else could you do:

  • Identify funding solutions like Invoice Finance that may have built in bad debt protection
  • Ensure you undertake regular credit checks on your customers – do they have the ability to pay you
  • Ensure you have a robust process for invoicing and chasing payments to ensure you collect in monies due on time

Funding and bad debt protection

We know that assessing your customers ability to pay can be difficult and you don’t want to turn business away. In the event of non-payment, not being able to recover monies that are owed to you for goods and/or services already supplied can have a serious and detrimental effect on your business. Our inclusive debtor protection solution gives you the confidence of knowing that you will receive payment for invoices due from your customer in the event of their non-payment thus protecting your longer term cashflow.

This solution can help your business if:

  • You want a method whereby you can effectively spread the commercial risk that some of your larger customers represent to your business.
  • You want to grow your business with the added peace of mind that your customers are credit protected.
  • You want to lessen the impact that a bad debt or late payment could have on your business cashflow.

By taking appropriate steps, firms can protect their businesses giving them the best chance to ride out the bumpy times ahead.


About eCapital Commercial Finance

eCapital Commercial Finance (eCapital) is a leading invoice financier providing funding facilities up to £3m to support the growth of SMEs through the provision of flexible working capital facilities. The business has grown significantly since its launch in 2001, providing over £4 billion of funding to businesses. It is majority owned by eCapital, a US based financial services business with interests in the USA and Canada.

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