Small to medium-sized enterprises (SMEs) represented the largest number of external administrators’ reports in 2018, according to a recent Australian Securities and Investments Commission (ASIC) report, which also identified industry sectors at highest risk. Here's how this could affect your business.
Companies with fewer than 20 employees accounted for 78% of recorded insolvencies
84% had assets of $100,000 or less
39% had liabilities of $250,000 or less.
The industries most at risk were
business and personal services, whichaccounted for the highest number of insolvencies, at 2150
the construction industry was second with 1642 insolvencies
the accommodation and food services industry is becoming more vulnerable with 1064 recorded insolvencies compared to 884 last year.
Risk factors for SMEs
Businesses going insolvent can also put their creditors and suppliers at risk when their customers are unable to pay their bills, but there is an insurance solution available to protect your business.
“Trade credit insurance protects companies against bad debts,” says Michael Woodward, National Practice Leader – Trade Credit at Gallagher. “That is, situations where they are unable to be paid money owed to them because their customer has gone broke. That could be liquidation, administration or receivership.”
When bigger businesses fail it can impact their suppliers and contractors, threatening the smaller businesses' survival.
Trade credit insurance optionsthat protect against non-payment include
whole of turnover– the most popular form of cover where the whole company debtor ledger is covered
single risk– cover could be arranged for one individual debtor. This is beneficial when a contractor is highly exposed, to a single major customer, for example
selective or multi-buyer– certain buyers are selected.
Peace of mind plus opportunity
If you are a supplier of goods and services trade credit insurance can not only help ensure you survive your creditors' businesses failing, it can also provide the flexibility to enable your enterprise to expand.
“Insurers provide higher credit limits for your ultimate customer and that allows your business to grow,” Woodward says. “There is also the potential of freeing up funding lines by using trade credit insurance.”
Gallagher National Practice Leader – Trade Credit Michael Woodward explains how trade credit insurance could help your business.
Want to know more about how trade credit insurance can help you? Let's talk.