BUSINESS HELPDESK RISKY BUSINESS HELP DESK
With record numbers of construction companies entering administration, it pays to cover your credit risk. Lauren Williams of Specialist Risk Insurance Solutions, a BMF partner, explains what’s involved.
THE CONSTRUCTION SECTOR contributes around 7% of the UK’s GDP (more than £110 billion) and supports more than 2.4 million UK jobs but with the impact of higher interest rates and material shortages taking its toll on the sector in 2023, figures show over a 15% increase in construction companies in significant financial distress in Q4 compared to the previous quarter1.
Faced with these challenges, it is no surprise that construction companies are falling victim to the current financial burdens. With a record 4,371 construction companies collapsing in 20232, the sector had its highest annual number of company collapses since the financial crisis in 2009, with big players such as Buckingham Group and Michael J Lonsdale having an obvious impact on their supply chains. With the outlook remaining uncertain for the sector, people are now monitoring relationships with their debtors more closely and looking to put contingency plans in place which is why 30% of trade credit insurance policy holders are within the construction industry.
What is Credit Insurance?
Trade credit insurance supports your existing credit control processes to protect you against bad debts arising from customers unable to pay for goods or services that have been provided on credit terms. Even if a customer is insolvent, Credit insurance guarantees that the insured debts will be paid.
Having a credit insurance policy in place allows you to take on larger contracts, new customers or new markets with the assurance that your credit risk
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is covered. You will gain additional information from your insurer that is not available in the public domain, such as information that a potential new customer has a history of not paying suppliers and you can free up cash from bad debt reserves that can be put to better commercial use elsewhere in your business.
How does Credit Insurance Work? A credit insurance policy looks to insure your turnover, either partially or in full. You will establish a credit limit for each of your customers and these can be added, amended or removed throughout the life of the policy. If a customer has not met the agreed
payment terms, this is reported to the insurer and collection action will need to begin. Should a customer become insolvent, a claim can be submitted, and we will work with you to help ensure a successful payment.
Trade Credit insurance is a niche product that requires careful risk assessment, and it is important to work with an insurance broker who has specialist expertise to ensure your business has the appropriate cover in place. Specialist Risk Insurance Solutions (SRIS) are the preferred Partner to BMF and has been working with BMF members to conduct risk reviews on their current ledgers and place suitable credit insurance policies.
“Taking on credit insurance has given me the assurance to grow our business and trade with confidence. We had never been credit insured before, but SRIS made the process so easy, giving me exactly what I needed!” – BMF member of 20 years. BMJ
If you want to explore credit insurance or ensure your existing policy is covering all your business needs, our Business Development Executive, Lauren Williams, can often be found at the BMF regional meetings or please get in touch with her directly at LWilliams@the-
channel-partnership.co.uk
www.buildersmerchantsjournal.net March 2024
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