Credit insurance costs reflect improvement in UK insolvency statistics
The UK Government’s insolvency service released figures on 29th July showing a drop in the rate of company failures during Q2 2014. The total figure of 4,184 (for England and Wales) comprises 3,461 company liquidations, 410 administrations, 171 receiverships and 12 Company Voluntary Arrangements – these figures are around 15% lower than the previous quarter. Generally then, good news.
Though not such good news if one of those 4,184 companies was a customer of your business who went bust owing you money. And it’s important to recognise that these figures show an improvement in the picture – they don’t imply that there is no longer any risk in extending trade credit to your customers.
These figures still mean that 1 in 177 companies in England and Wales went into liquidation in the 12 months to June 2014. It is interesting that we at The Channel Partnership have seen more new enquiries in each of the last 2 months than we saw on average for the first 5 months of the year. The story amongst many of those companies that we are now speaking to is that there is still a fear that there may still be problems ahead for many businesses. Some of the risk factors highlighted are;
- Impending interest rate rises could cause problems
- Many of the wider, global issues may have far reaching consequences
- The UK is out-performing many of our trading partners and there are doubts about how sustainable that situation may be.
Coincidentally, there was an article in Insolvency news on 27th July which drew attention to the high level of trade debt being experienced by UK SME’s – with smaller companies having to shoulder “dangerously high trade debt levels”. This means that whilst the risk of insolvencies generally is falling back to pre-recession levels, the level of trade debt exposure is increasing – a bad debt is less likely to happen, but the impact of that bad debt is likely to be much greater.
Our experience of the credit insurers is that there is increasing competition and some highly competitive premiums being offered. However, the real value with credit insurance is the amount of cover being offered and we are seeing considerable differences amongst insurers when it comes to levels of cover being offered. This means that there are highly competitive deals on offer, but that these need to be considered in detail – the cheapest option isn’t always the best value option.