BUSINESS HELPDESK
BUSINESS HELPDESK
HELP DESK
SAY GOODBYE TO BAD DEBT
In the wake of the collapse of Carillion, Mary Prescott, Head of Broking at Bluefin Trade Credit, offers guidance on protecting your business against bad debt
THE REPERCUSSIONS FROM Carillion’s demise will be felt through the building supply
chain for the rest of the year and possibly beyond. Here we take a look at its wider impact down the supply chain, and how credit insurance has provided a safety net for some, while others have suffered significant losses.
Carillion had been a hot topic within the credit insurance
industry for some time. Following the three profit warnings it issued in less than six months, credit insurers were treading carefully – and with a £900m debt pile and a £600m pension deficit you can see why underwriters were concerned.
The warning signs may have been clear to the insurance industry, but relatively few of the companies affected viewed credit cover as a priority. One can understand why sub-contractors that were in the throes of projects continued to trade as usual. They had traded with the UK’s second largest construction company for many years without any issues. Some were also contractually bound to continue to work.
Privately, they may have thought if Carillion goes bust they are all in a lot of trouble, but there was also a general assumption that the government would never let it fail, as too much was at stake.
We now know that this was not the case. Unfortunately, builders’ merchants and building materials suppliers may ultimately experience the domino effect – the wider consequence of the construction giant’s failure. No one yet knows how far this will reach, and how long it will take for businesses to discover that they are somehow part of the chain back to Carillion. While it is too late to insure against debts
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relating to Carillion, its demise clearly demonstrates the relevance of credit insurance going forward, particularly in potentially volatile sectors such as building and construction.
What lessons can we take for the future? Ultimately, those who had credit insurance in place on this occasion were the fortunate ones. While others may receive nothing, they will, at least, receive claims payments up to the insured credit limits, or in respect of contracts they were bound to continue to fulfil. Cover for retentions and advice on Retention of Title was also provided by their insurers, who immediately issued advice and help to policy-holders on how best to deal with claims and mitigate the loss for both parties.
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The construction industry has been classed as high risk for years
“ The co T
with a history of high
The benefits of credit insurance extend beyond the financial safety blanket it provides. Insurers also act as an early warning system. They will have market intelligence on what is happening in a sector and can advise businesses to revise their exposure to certain customers. That certainly
happened in advance of Carillion’s collapse. Companies with credit insurance were forewarned over
”
a period of time and advised to keep a close eye on outstanding balances, keep within credit limits and generally be cautious – the benefits of which are all too evident today.
Different insurers will have
different terms and operational approaches and a good broker can help clients negotiate their way through those differences and find the best option for their particular business. For example, in the lead up to Carillion’s collapse some saw insured credit limits reduced, or eventually withdrawn, for future deliveries with Carillion. Here were clear indications that they needed to act on outstanding balances and be cautious. That said, one major insurer had cover in place for work/deliveries right up to the Friday before the company’s insolvency was announced the following Monday.
Of course there is a cost
attached to credit insurance, but for many SME businesses should a claim be necessary, the resulting payment will be a lifeline and in the vast majority of cases claim payments outweigh premiums paid over the years. In the wake of Carillion, those who have a received a disproportionate claim payment to the premium paid are likely to see an increase in premium next year, but this
is an exceptional industry-wide loss. Once again, a good broker, representing their clients’ interests to the insurers will enable
premiums to remain at acceptable levels.
The construction industry has been classed as high risk for many years – and a history of high
profile insolvencies appear to show this to be justified. Nonetheless it remains one of the largest insured sectors in the UK credit insurance market. In our view credit
insurance is imperative for every company in this volatile sector. As this year’s events have already shown, it is surely better to be safe than sorry.
Bluefin, as the provider of the BMF Credit Insurance Plus service, are here to help guide you through all aspects of insurance. We
remain committed to ensuring the most cost effective and compliant insurances are available to the industry . BMJ
For more help and information, speak to Mary Prescott, Head of Broking – Trade Credit, tel: 0113 394 2258 or email: mary.
prescott@bluefingroup.co.uk
Disclaimer: Any views or opinions expressed in this briefing are for guidance only and are not intended as a substitute for appropriate professional guidance. We have taken all reasonable steps to ensure the information contained herein is accurate at the time of writing but it should not be regarded as a complete or authoritative statement of law.
www.buildersmerchantsjournal.net March 2018
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