At the end of 2017, the Association of British Insurers (ABI) released a report highlighting that £574,000 was paid out every day to UK companies with credit insurance policies by the credit insurers.
These numbers mean that credit insurers in the UK paid out £209,510,000 in a twelve month period which will have had a significant impact on the economy and will have helped hundreds of businesses to trade and to trade without disruption to their cash flow, their profit and their balance sheet. That’s probably thousands of jobs saved by companies who have credit insurance to see them through the problems caused by significant bad debts.
Good news? Well there’s another side to these figures.
Bad debts in the UK leave around £1bn of trade creditors each year. £200m was paid out by insurers. That’s just 20% of total bad debts that are insured.
Back to those ABI statistics, there are around 12,000 credit insurance policies in place in the UK. The actual number of UK companies with credit insurance (or debtor protection) will be higher than this as some policies cover multiple companies. Still, the number of companies with credit insurance is tiny compared to the number of companies who could have credit insurance.
Now, many companies may set aside an adequate bad debt reserve to allow themselves to “self-insure”. Other companies may have made a decision to trade with high credit risk customers where credit insurance isn’t available.
But most companies don’t have credit insurance because they “don’t think it will happen to them”. Or because they (mistakenly) believe that their historic bad debt record is any sort of predictor of future experience. Every time there is a major bad debt, we see a flood of new enquiries from companies who, having experienced the pain, now want to prevent it happening again.
As the great philosopher once said, “There’s no lesson in the second kick of the mule”.
However, the really smart behaviour is to address the risk before the event and not after. Yet many businesses lack effective credit management. 54% of business owners admit to forgetting to invoice at least one project each year, and 72% confirm they have no idea whether their clients are credible or good for the money.
Credit insurance through The Channel Partnership isn’t the only tool in the box when it comes to credit risk management. Our experience is that for every two businesses that we have a serious conversation with about credit insurance, one will go ahead with our service and one won’t.
In our view, both of those companies have made the right decision and both have made their decision fully informed.
The only bad decision is to decide that credit insurance through The Channel Partnership is not an option worth exploring.