Weathering the credit storm

Credit insurance may help business through turbulent times, says Grant Williams

Grant Williams: Firms should be seeking credit protection.

Almost a year since the first rumblings of a credit crisis rippled over the Atlantic, the UK is preparing to batten down the hatches for when the eye of the storm hits.

Despite reducing their savings levels, consumers are still struggling to meet increasing food, fuel and housing costs. To compensate for the rising cost of essentials, consumers are cutting back where they can.

The payment behaviour of companies has clearly deteriorated since the beginning of the year. As a result, margins are being squeezed and companies may well be experiencing cashflow problems and a higher risk of failure.

So, what can be done to maintain a healthy cashflow at a time when there is less money to go around?

First, prevention is better than cure, so firms should regularly review the payment ability of customers and not trade with a potential customer on credit until they have obtained a credit report.

Cashflow protection
Firms should seek protection from non-payment ­ in the event of a customer becoming insolvent, credit insurance will pay up to 90 per cent of what you have lost or not been paid. And one of credit insurance’s main benefits will then come into play ­ stopping the domino effect of business failures.

Should you be in a situation where your customer goes beyond the agreed payment terms, using a professional collections agency will not only minimise the impact on your cashflow but will also help you maintain good customer relations.

Firms are increasingly looking at factoring and invoice discounting to improve the management of their cashflow. Instead of having to wait for up to 60 or more days for your customers to pay, you can receive up to 90 per cent of an invoice value immediately.

So, despite the fact that we are expecting things to get worse, you can take a number of steps to make sure that your business is there when the storm clouds lift.