Protecting you cash flow with debtor insurance
One of the main things I hear from business owners who have been around a while is “I lost a heap of money to one customer when they went broke” or “I almost had to shut down my business because I lost a lot of money to one customer”. You always hear of people taking out life insurance, car insurance, income protection and the list goes on. When you’re running a small business everyone seems to think only to insure their physical assets like the warehouse contents and cars etc. But overlook a very, very important risk…your debtors.
“In the month ending 30th September 2008, 867 companies entered into external administration” According to the Australian Securities & Investment Commission (ASIC).
The problem: You are operating a small business and selling goods or providing services to other companies on credit terms. You might sell a large proportion of goods to one customer and they have been paying your invoices regularly without any hassle, so because you feel comfortable with them you decide to sell more goods to that company and before you know it you have a huge percentage of your turnover to one of more customers. A few months later the excuses start, then they stop returning your calls and finally you get a call telling you that the company has been placed into liquidation and that’s when things start to get rough because you have suppliers to pay, mortgages, car payments and wages. You had a large percentage of your turnover tied up in this one customer and who knows if you’re going to get the money back, and if you do it could take six months.
“outsourcing your credit checking to a factoring company with experience can greatly reduce any losses you might incur and give you the confidence to take on more work or extend more credit to your customers, it just takes the guess work and stress out of deciding for yourself and get on with making money” AR Cash Flow
The solution: One option is to use a factoring company with expertise in credit checking of debtors which is usually included in the price of their other services. This way every time you want to do business with a new customer you simply ask your factoring company if it’s ok and how much credit you can extend to them safely without having to take out a trade credit insurance policy yourself which can be costly in some circumstances. The second way is to apply for trade credit insurance from a company like QBE Insurance, if you operate in the B2B market then an insurance policy can be your first line of defence to cover any potential losses you might get from one of your customers going broke.
If you want to know more about trade credit insurance please email [email protected].