A new report from the Australian Securities and Investments Commission has highlighted growing numbers of insolvencies in certain industries, with SMEs making up the bulk of external administrators’ reports in 2018.
In its latest annual overview of corporate insolvencies, based on statutory reports lodged by external administrators, ASIC reported 7613 insolvencies over the 2017–18 financial year.
Industries at risk
- Business and personal services accounted for the highest number at 2150.
- The construction industry registered 1642 insolvencies over the financial year.
- Insolvencies in the accommodation and food services industry rose with 1064 compared to 884 last year.
- 78% of insolvency reports concerned companies with fewer than 20 employees.
- 84% had assets of $100,000 or less and 39% had liabilities of $250,000 or less.
While the ASIC report focuses on the insolvent businesses themselves, creditors and suppliers that deal with an insolvent company also face risks.
Michael Woodward, National Practice Leader – Trade Credit at Gallagher, explains that insurance coverage can help these businesses when an insolvency is declared.
“Trade credit insurance protects companies against bad debts,” Woodward says. “That is, situations where they are unable to be paid money owed to them because their customer has gone broke. That could be liquidation, administration or receivership.”
Trade credit insurance provides peace of mind to suppliers of goods and services against their creditors falling over. It can also be used as a springboard to further growth.
“Insurers provide higher credit limits for their ultimate customer and that allows our clients business to grow,” Woodward says. “There is also the potential of freeing up funding lines by using trade credit insurance.”
See Gallagher National Practice Leader – Trade Credit Michael Woodward explain how this insurance could help your business.
The big end of town
While SMEs may represent the largest proportion of business failures, when bigger businesses fail the domino effect can knock on to their contractors and suppliers, Gallagher Practice Leader – Trade Credit, Surety & Political Risks Paul Morgan explains.
“In a situation like this an insurance policy can make or break a business.”
What policies can contractors call on in a major customer collapse?
The trade credit insurance options that protect against non-payment include
- whole of turnover – the most popular form of cover where the whole company debtor ledger is covered
- single risk – cover could be arranged for one individual debtor. This is beneficial when a contractor is highly exposed, to a single major customer, for example
- selective or multi-buyer – certain buyers are selected.
Want to know more about how trade credit insurance can help you? Let's talk.