Small businesses (SMBs) need trade-credit insurance to protect themselves against the unique cash-flow challenges that threaten their solvency, particularly during the start of a new year, according to a trade-credit insurance leader.
Mark Hoppe, ANZ managing director for ANZ, said “for a small business, it can take just a single customer failing to pay to create a significant cash flow crisis,” particularly for those that “manage the accounts themselves.”
Hoppe said financial pressures often peak at the start of the new year, when work is often slow and income is reduced, for it is at this time that “the first rent payment of the year is often due ... along with other expenses.”
“Consequently, every January, we see a spike in the number of small-business insolvencies,” he said.
For many small businesses, one of the biggest cash-flow challenges is paying for inventory or equipment upfront, as well as working with customers who don't pay on time.
“When your customers don’t or can’t pay within your credit terms, your cash flow will suffer,” Hoppe said. “Depending on how liquid your business is, this can cripple it and damage relationships with other trading partners as you find yourself unable to meet your own debt obligations.”
It is in the face of these challenges that trade-credit insurance can come and save the day.
“Trade-credit insurance can act as a buffer when your customers don’t pay,” Hoppe said. “It can make up the shortfall so you can still make the payments required to keep your business operating even if your customers have let you down.”
Having trade-credit insurance can also help SMB owners make smarter business decisions.
“It can help identify at-risk customers so you can avoid offering them items on credit, which increases your risk of non-payment,” Hoppe said. “Armed with reliable information regarding which customers are likely to pay versus those likely to default, you can trade with more confidence and success. An ancillary benefit of trade-credit insurance is that it can help you access more favourable borrowing terms, which can give your business more opportunities to innovate and expand.”
Hoppe said SMBs should get ahead of the curve now so they can avoid going out of business due to bad debt.
“Securing you cash flow means you can innovate to stay ahead of the competition and remain viable even if the market tightens,” he said.