If you want your commercial clients to stay in business, you'd better educate them on trade credit risk, says John Nicholson
As brokers we continue to position ourselves as comprehensive risk consultants to our clients. But how many of us are actively helping them to address one of the most potent killers of middle market and SME businesses: non-payment risk?
The annual statistics on business failure through payment default allude to how few middle market and SME companies are using trade credit insurance as part of a robust risk management programme. Why is this form of protection so ignored by businesses? Using the maxim that it costs significantly more to obtain a new client than it does to retain one, we should be doing everything we can to keep our customers in business.
What does the insurance industry need to do in order to change the mindset of decision-makers and make them recognise the risks they run?
Two of the obvious barriers are that trade credit insurance is not a mandatory class and often clients place too much trust in the strength of their personal contact with their buyers. These are factors that as an industry we can do little about.
However, other factors that I believe impact on this situation, and which we can do something about, include lack of knowledge or misconceptions about product features, costs and benefits.
Trade credit products have come a long way over the last few years. Ask your clients how many of them are aware of the standard elements of today's credit products, including facilities such as buyer screening for prevention of non-payment risk or trade debt collection services. How can a finance director weigh up the value of a service without understanding what they receive for their premium investment?
Advantages to clients, such as allowing them to be more aggressive in their sales strategies, to use trade credit as a framework for good credit control and to develop more flexible relationships with lenders will help them to build stronger companies rather than simply defending them.
As an industry we have to take responsibility for encouraging companies to recognise the available benefits of a well managed trade credit risk programme.
Some underwriters are going as far as advertising in high circulation media titles such as the Daily Mail to spread the word. Good though this may be, it is at the front line with our own clients that we should be most active, encouraging them to talk to our trade credit specialists and perhaps credit underwriters to explain the pros and cons of these types of services.