|
Be Credit Safe
Despite the controls in place to limit late payment, hundreds of UK businesses close every year because customers were slow to send money, or got into financial difficulties and couldn’t pay up.
You might have the clearest credit terms possible, be explicit about what you expect from customers and be super-fast in chasing up debt, but you can never eradicate late payment completely.
When companies get into serious financial difficulties they can opt for administration or become insolvent. Either way any debts they owe – including contracts they may have signed with your business – are written off.
Recent research by the Credit Management Research Centre shows that, on average, small and medium-sized businesses are forced to write off around £14,000 worth of debt each every year, because they failed to secure payment.
On the basis of a 5% profit margin, these would have to do an extra £280,000-worth of business to make up their losses. Not surprising, then, that a third of businesses see late payment as a serious problem.
Credit insurance
So what can you do ensure your business does not become a victim of late or non-payment? Insuring against the problem is a popular method. Good credit insurance should cover you against a range of risks, whether they originate from customers at home or overseas.
Say, for example, your manufacturing company wins a contract to supply 5,000 calculators to a company in Germany. If, after you invested money in raw materials, labour and supply costs, the German company goes bust; you’d lose the lot – unless you were insured against such an event.
Such a cataclysmic happening could cause a smaller business to fail, whereas less substantial non-payments could chip away at your sales figures over time. If you rely on one client for your survival, then credit insurance is simply a must.
Just like with any other type of insurance, premiums – or the amount your insurance costs – will depend on the nature of your business, what it sells, where it sells it to, and in what quantities.
A good policy should offer protection against your customers’ default or insolvency, transfer delays, import license cancellation and even political events such as government intervention or disruption caused by a war.
In some cases, you can also insure against selected customers within you portfolio or on specific contracts, a useful service if your business relies on one or two big paying clients. You should also be able to get a quote and cover your items online.
Because of the nature of their industry, credit insurance companies have an in-depth and wide-ranging knowledge of overseas markets. Before insuring you, they will want to know that you’re doing good business with your customers.
A useful offshoot of this fact is that you’ll get ‘free’ coaching on the right way to do business in other countries. They can advise you as to which countries are a high risk and even whether particular contracts are worth pitching for.
For smaller businesses, with fewer employees and tight margins, insurance could be the best way forward. Blue chip companies employ whole departments of specialists to chase up payments and deal with the associated legal paperwork.
If you can’t afford that luxury, buying in insurance will give you the peace of mind that you will definitely be paid for the contracts you carry out. It will also free up your time and energy, which can be channelled into running your business.
For quick, easy and affordable credit insurance, click here
| 
