Why it's sensible to insure against ‘bad debt'

The collapse of Carillion in January had a knock-on effect for many other businesses
Eileen Watt

THERE will always be winners and losers in business. And sometimes there is a run of bad news, which has been the case recently with difficult announcements made by firms such as Wrightbus and Lagan Construction.

The most significant casualty, though, has been the collapse of Carillion, the UK's second largest construction firm. With over 20,000 employees across the UK, including contract work in Northern Ireland, this is a worrying time for employees and their families.

But the economic consequences don't end with Carillion's staff, because there will undoubtedly be a knock-on effect for other businesses.

It can be difficult to gauge the magnitude of Carillion's operations, but it's estimated that around 30,000 businesses – suppliers and contractors – will be affected. The company's demise is a shock for its entire supply chain, and many business owners are looking at the prospect of significant losses from goods and services already supplied to Carillion.

The tragedy is that some excellent businesses may be brought down as ‘collateral damage' with Carillion's fall, but it needn't be that way.

Insurance is about managing risk and that includes the prospect of customers not being able to pay their bills. One way to mitigate that risk is credit insurance which covers you in the event of a bad debt through Insolvency or Default situations.

The great thing about these policies is that they are designed for all sorts of businesses from SMEs to global companies – plus it can also be tailored depending on the sector you operate in.

Winning new business can be hard enough, but knowing that you have insurance before taking on new contracts gives you more peace of mind. Credit insurance is a cost effective way to ensure you get paid for the products and services that you provide. It provides the reassurance that comes with knowing you're protected against those unexpected instances of customer insolvency and protracted default situations.

The policy, though, isn't just about protecting your business after a customer defaults on a contract, it's also designed to help grow your business in the here and now, knowing that you have insurance in place.

Credit insurance provides businesses with a safe platform on which to expand their sales and operations. It provides the confidence to work with new customers and to sell on an open account basis. This can be a major competitive advantage when tendering for new business, especially in overseas markets.

Brokers can also provide detailed market intelligence on potential customers and the policy can open up better borrowing and financing options. In some cases, credit insurance is required to obtain new banking facilities, giving your lender the reassurance they need to extend you additional finance.

Another upside is that your firm can benefit from a healthier balance sheet, as there will be less need to make a bad debt provision.

It's expected that trade credit insurers will pay out £31 million to former Carillion suppliers and in 2016 the industry paid out £210 million for non-payment alone.

Despite this, less than a third of UK firms have credit insurance, leaving themselves open to unnecessary risk. Taking time to assess its relevance for your business could be the best decision you make all year.

:: Eileen Watt is credit insurance executive Autoline Insurance Group (

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