Credit where it's due – as the perfect storm is brewing
ONE of Northern Ireland's most prolific manufacturing firms Wrightbus collapsed into administration last month. But sadly its demise is far from an isolated event, with businesses up and down the country facing huge financial pressures and the imminent threat of closure.
While Wrightbus has its own unique set of unfortunate circumstances for entering administration, it's clear many businesses are struggling to contend with a myriad of heightened challenges including Brexit, a lack of devolved government and local decision-making, rising debt, national minimum wage increases and a weakening pound.
The perfect storm is brewing and the outlook is far from rosy.
According to a report by UK credit check specialist Creditsafe, the number of firms that have gone out of business here since the Brexit referendum result has increased by 114.3 per cent on an annual basis – the largest increase in the UK.
These figures are supported by findings from insolvency specialists that almost 7,000 businesses in Northern Ireland were recorded as being in a ‘state of distress' in the first three months of 2019.
The situation is particularly acute due to the predominance of SMEs in Northern Ireland, which represent more than 80 per cent of the market, and are most vulnerable to payment delays, rising online competition and weakened consumer spending. There is also the ‘domino effect' where one company's insolvency increases the insolvency risk for others.
So what can businesses do to protect themselves?
The old adage that ‘cash is king' has never been truer. While there isn't much that can be done about political and macroeconomic issues, companies can mitigate risks due to insolvency in its supply chain or its customers through active monitoring of partners' credit profiles, diversification where possible to spread risk, and through building strong supplier/partner relationships.
It is no surprise that, in light of increased insolvencies and economic and political volatility, a growing number of businesses are taking a more strategic approach to credit management and turning to credit insurance to protect them from bad debts.
According to the Association of British Insurance (ABI), in the first quarter of the year an average of 57 firms a day were helped by trade credit insurers.
Trade credit insurance protects against a range of challenges facing any business that extends credit to its buyers. A vitally important element of any credit insurance policy is the level of protection against insolvencies and default situations. Some credit insurance under-writers offer a fully integrated international debt collection service that provides additional assurance to ease some of the pressure and costs, especially when exporting globally.
Credit insurance advice can also help reduce the risk of financial loss alongside your overall credit management process. In our experience, relying solely on credit reports and trade references as a form of risk assessment is not enough. While annual accounts are often nine months old when filed, insurance companies can have up-to-date real-time information on a potential new buyer.
With tough tradition conditions showing no signs of easing any time soon, and insolvencies and debt issues continuing to bite, having a robust risk mitigation strategy in place, including a credit insurance policy bespoke to your needs, should help protect a company's financial integrity, demonstrating external confidence and positioning it for future growth and success.
:: Barry Dorrity is credit account handler at Autoline