Trade credit risk stands out as risk often misunderstood until it is too late.
In times of massive economic volatility, it’s crucial for businesses to reassess their trade credit risk. Reviewing processes and strengthening risk management strategies can help safeguard against potential financial instability.
When a company approaches us, they are primarily ‘self-insuring’ their trade credit risk. We help them understand the risks they are exposing their business to and highlight the value of Trade Credit insurance.
We frequently encounter common misconceptions about managing credit risk, so lets take a look at a few:
“We do not need Trade Credit insurance as we have not incurred bad debts”
With no real-world data to work from, it is easy to benchmark the cost of Trade Credit insurance against your business’s historic bad debt record; “Credit insurance would have cost me £x over the last 5 years and I’ve only incurred £y bad debts so I am better off not having had credit insurance in place”.
However, we take insurance out as protection against the risk of something happening in the future, not what has happened in the past. The economic outlook is looking ominous, with corporate insolvencies seeing an 11% rise in January 2025 compared to January 20241.
“We rely on credit rating agencies”
Companies like Creditsafe and Experian provide reports on every UK company (and many overseas companies) giving a recommended credit limit and risk rating. They analyse data and trends from accounts and other documents filed at Companies House, court proceedings and other sources. Credit risk management processes built around these reports, plus trading experience and industry news is as good as it gets for some SME’s.
Unfortunately, predicting an insolvency is difficult and credit reference agencies often continue to recommend high credit limits right up until the point of insolvency.
Speak to our experts
Conversations around trade credit risk management are detailed and nuanced with no right or wrong answers. At a time of great global economic and political uncertainty, we highly recommend speaking to our experts for a chat about your business’s credit risk management processes and how we can provide advice on the most viable ways to protect your business; whether that’s through Trade Credit insurance or not.
To find out more about trade credit and how our specialist team can help, contact us here: 01275 817 320
and tradecredit@specialistrisk.com
