Businesses failing through increased customer defaults

Businesses worldwide are suffering financially and in many cases actually failing themselves through the domino effect of their business customers defaulting on credit terms, often as a result of their own customers in turn failing to pay up or even going bust. In a vicious spiral default on credit terms between businesses are rippling like dominoes through the business world causing further defaulted payments and in some cases businesses are being forced into administration being unable to continue without the vital cashflow all businesses need to survive.

Whilst defaults have always been a risk when invoicing business customers on credit terms, the risk as it has been in recent decades has in the global recession changed fundamentally for a number of reasons:

1. in the current economic climate, most businesses are experiencing reduced sales, turnover & profits compared to recent times, leading to in many cases extended settlement of bills and invoices to their suppliers and in some cases insolvency or administration of the business.
2. businesses with customers in the above circumstances suffer delays or total failure in the expected and crucial receipt of payments for goods & services provided which in turn adversely affects it's own cashflow and ability to pay it's own invoices due.
3. traditional 'bail-out' solutions such as overdrafts or other assistance from it's bankers have increasingly been reduced or withdrawn.

Michael Cooke, Business Risk Consultant at The Insurance Helper comments: "It's very frustrating to see an otherwise solvent and sound business suddenly dragged into financial difficulties or even into administration through no real fault of their own as a result of unpaid invoices, especially when it's as a result of the domino effect and they had used appropriate due diligence in setting credit limits for customers but those customers then default due to unforeseen external factors.

"Many businesses we work with feel protected through their use of initial and ongoing credit checking of customers and the setting of appropriate credit limits combined with the option of pursuing debtors through the courts for unpaid debts or the use of debt collection companies to resolve bad debts; however, it's a sad fact that with the withdrawal or reduction in short-term funding from banks to cover the funding gap while debts are recovered, some businesses are simply unable to survive long enough without the crucial cashflow in the business to actually recover the debt, and just go bust themselves before recovering the monies owed.

"It's because of these aspects that Trade Credit Insurance is more vital for businesses today than it has ever been. The global downturn and resulting business failures and associated Trade Credit Insurance claims have led to some of the smaller and less sophisticated Trade Credit Insurers frantically reducing cover and increasing premiums, however we work with specialist providers which through the use of unrivalled business information databases and extensive knowledge of this risk type are able to continue offering quality cover and speedy settlement of claims to our business clients at very reasonable premiums."