Carillion demise is powerful reminder to protect your cash flow

01/02/2018

With tens of thousands of businesses facing an uncertain future after the collapse of Carillion, it is a powerful reminder for businesses to protect their cash flow against debtor insolvency.

The construction and outsourcing company collapsed on 15 January leaving an estimated 30,000 British businesses affected and owed as much as £1 billion in total.

Yet, the Association of British Insurers (ABI) said that it believed only £31 million would be paid out by trade credit insurers to companies in the Carillion supply chain – just 3% of their estimated losses.

As a result, thousands of jobs and livelihoods are now at risk because many companies did not take out adequate credit protection against its failure.

Trade body Build UK said that, in the past, when other big contractors have failed around 18% of businesses who were creditors did not survive the next five years.

This highlights the devastating domino effect that one insolvency can have on the entire supply chain.

Yet, despite the obvious benefits of credit insurance, few companies take out such cover, particularly small businesses.

ABI figures show the industry paid just £210 million in trade credit insurance in 2016.

Mark Shepherd, assistant director at the ABI, said: “The demise of Carillion is a powerful reminder of how trade credit insurance can be a lifeline for businesses in these uncertain trading times.

“This insurance is an essential business tool that helps firms trade and expand in the UK and overseas.

“For all businesses, large or small, bad debt could easily put their day-to-day operations at risk, threatening the jobs of their employees. One insolvency can risk a domino effect to hundreds of firms in the supply chain.

“Trade credit insurance is an essential resource that provides businesses with the confidence to trade, secure in the knowledge they are financially protected when insolvencies occur.”

What is credit insurance?

Trade credit insurance, also known as bad debt cover, acts as a safeguard against the risks of bad debt by protecting cash flow from debtor insolvency or protracted default.

When an invoice becomes aged or a customer enters insolvency proceedings, the credit insurance company guarantees payment for any goods or services supplied, subject to a designated credit limit.

While credit insurance can be provided as a standalone product, it can also be supplied as part of an invoice finance facility, which additionally releases funding against the value of invoices within 24 hours of their issue to further protect businesses from the cash flow implications of trading on credit.

Are you protected?

Do you have a trade credit insurance policy to protect your business against failures like Carillion?

Whether you’re looking for full cover, selective cover or an invoice finance facility with debtor protection we could help find the most suitable solution for your needs.

As a trusted commercial finance broker we will save you time in your search for credit insurance and introduce you to the most suitable facilities and insurers.

Contact our team on 0800 9774833 or info@hiltonbaird.co.uk to discuss your options with one of our expert consultants.
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