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We see it happen time and time again. Administrators are appointed to a collapsed business and creditors are left scraping the bottom of the barrel, (or keg, in this case) for less than one cent in the dollar.

According to a report in the Australian Financial Review, unsecured creditors of Mighty Craft, a company placed into administration on 22nd July, will receive an estimated 0.5 to 0.9 cents in the dollar back through the administration process. Basically nothing. View the article here.

But what if your business could secure 90 cents in the dollar, when one of your customers become insolvent?

Economic factors continue to impact consumers and businesses. Insolvency levels have been typically led by the construction sector, however, other sectors such as foodstuffs and beverages are hitting the ‘scoreboard’ hard.

During the ASX reporting season, bad debts have significantly impacted results, which can disrupt shareholders returns and dilute profits.

Trade Credit Insurance is a tool used by many businesses to protect profit, shareholders and businesses against the impact of a bad debt. You can design a policy which can return cash back to a business  should one of your customers become insolvent.

In Europe, Trade Credit Insurance has been used as a standard protection mechanism and security for businesses, like any other general insurance product they may purchase. Whilst thousands of businesses in Australia now use Trade Credit Insurance also, the uptake is much smaller versus the European zone.

Trade Credit Insurance is an affordable tool to price into your business. Depending on the risk appetite premiums can range from as low as 0.05% up to 0.5% of insurable credit sales.   This means, for a $120,000 customer invoice, at an average rate of 0.3% the insurance cost would be $360 for a potential 90% return in the event of that customer becoming insolvent.

Trade Credit Insurance also provides many other benefits to a business, such as unique information and intel on your customers, early warning and alerts of adverse information, support in collection or legal action on overdue debts and security for increased financing of your business.

NCI has been supporting small businesses to large corporations over the past 38 years in Australia and New Zealand, by designing tailored trade credit solutions to meet each businesses requirements and risk transfer appetite.

To find out how your business can protect your profits, provide owner and shareholder comfort and receive real cash dividends in the event of insolvency, contact us at [email protected] free call 1800 882 820 or visit www.nci.com.au for more information.

You could be saying ‘Cheers!’ to much larger return the next time one of your customers goes into administration.

France, Italy, the Netherlands and Spain are all heavy users of the Trade Credit Insurance (TCI) product and have protected themselves against the risk of a bad debt, just like any other business insurance, for many decades. Australian businesses are still learning about the benefits of TCI but are quickly snapping up the product given the level of current and growing insolvencies.

Businesses with any trade exposure to the building and construction industry should consider protecting them against a potential bad debt, especially those that are seeking to grow and take on new customers.