Nigel Birney, Head of Trade Credit and Surety NI, Willis Towers Watson
While the business community was expecting turmoil in 2021, it didn’t forecast a double-hit of a global pandemic along with the direct impact of an exit from the EU.
“With an increase in the projected number of insolvencies due to both the pandemic and increased trading costs related to Brexit the demand for credit insurance has increased exponentially, “ Nigel Birney, head of trade credit and surety Northern Ireland, Willis Towers Watson, tells Ulster Business.
He says the recent announcement by the UK Government that it will extend its £10bn guarantee to the UK credit insurance sector until June 30 “reflects the pivotal role of credit insurance in not only helping business to recover from the unprecedented impact of Covid-19 but the scheme also enables underwriters to keep credit lines in place on businesses considered most vulnerable to the challenging post Brexit trading conditions, otherwise there could potentially have been serious disruption to supply chains.”
Trade Credit Insurance insures suppliers selling goods against the company they are selling to defaulting on payment.
And with coronavirus and businesses struggling to pay bills, there is risk of having credit insurance withdrawn, or premiums increasing to unaffordable levels
“The unprecedented levels of uncertainty in the domestic and global economies has made managing trade credit risk an incredibly difficult task,” Nigel says.
“What is certain is that over the coming months and medium-term businesses will find it harder to get paid, it will take longer, and they will not get paid at all if a customer fails.
“In the post-Brexit era credit insurance will continue to enable businesses to trade with confidence knowing that should a customer default in payment either because of insolvency or cashflow difficulties, they will not suffer financially.
“Credit insurance also provides policyholders with extremely detailed market intelligence on their customers and prospective customers to enable more informed commercial decisions to be taken to enable to grow their business safely.
“Most major credit insurers also provide an integrated debt collection service which can be extremely useful, especially when exporting, as the insurers have locally based debt collection teams across the globe.”
The need and demands have changed considerably over the last few months. According to Nigel, companies would have only reverted to credit insurance when exporting high-value loads.
“Historically companies would generally have only considered credit insurance protection when exporting however the risk landscape has changed significantly with most local businesses requiring credit insurance to cover sales within the UK and Ireland and with the significant increase in the projected number of insolvencies due to both the pandemic and increased trading costs related to Brexit the demand for credit insurance has increased exponentially,” he says.
“Due to the prevailing uncertainty in the UK economy and in order to ensure that credit lines with insurers are maintained in order to prevent potential disruption to supply chains businesses are encouraged to take ownership of their own credit rating and be prepared to share management information with underwriters on a regular basis.
“As companies look to continue trading through Covid-19 and in the new post-Brexit era access to working capital may be critical for many businesses and having credit insurance can improve access to such facilities and improve a company’s credit risk profile as many banks and commercial funders accept credit insurance as an additional means of collateral.”
Among the sectors reliant on credit insurance is construction. It plays a significant role in the industry, giving businesses throughout the supply chain the confidence to trade with one another.
“The coronavirus pandemic has created problems for many businesses,” according to the Construction Leadership Council.
“Given the sudden disruption to economic activity, reduced cashflow and the resulting increased risks of insolvency and default in the market, businesses have seen trade credit insurance withdrawn, premiums increasing significantly, or the level of cover offered reduced.
“The withdrawal of cover could cause further difficulties for businesses, by placing pressure on liquidity, necessitating changes to payment terms, and depriving SMEs in the construction sector access to trade credit, on which they depend.”