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Is your SME vulnerable to insolvency risk?

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Small to medium-sized enterprises (SMEs) represented the largest number of external administrators’ reports in 2018, according to a recent Australian Securities and Investments Commission (ASIC) report, which also identified industry sectors at highest risk. Here's how this could affect your business.

Over the 2017–18 financial year ASIC reported 7613 insolvencies in its most recent annual overview of corporate insolvencies, based on statutory reports lodged by administrators.

  • Companies with fewer than 20 employees accounted for 78% of recorded insolvencies 
  • 84% had assets of $100,000 or less
  • 39% had liabilities of $250,000 or less.

The industries most at risk were

  • business and personal services, which accounted for the highest number of insolvencies, at 2150
  • the construction industry was second with 1642 insolvencies 
  • the accommodation and food services industry is becoming more vulnerable with 1064 recorded insolvencies compared to 884 last year.

Risk factors for SMEs

Businesses going insolvent can also put their creditors and suppliers at risk when their customers are unable to pay their bills, but there is an insurance solution available to protect your business.

Michael WoodwardTrade credit insurance protects companies against bad debts,” says Michael Woodward, National Practice Leader – Trade Credit at Gallagher. “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.”

When bigger businesses fail it can impact their suppliers and contractors, threatening the smaller businesses' survival.

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.

Peace of mind plus opportunity

If you are a supplier of goods and services trade credit insurance can not only help ensure you survive your creditors' businesses failing, it can also provide the flexibility to enable your enterprise to expand.

“Insurers provide higher credit limits for your ultimate customer and that allows your business to grow,” Woodward says. “There is also the potential of freeing up funding lines by using trade credit insurance.”

Gallagher National Practice Leader – Trade Credit Michael Woodward explains how trade credit insurance could help your business.

 

Want to know more about how trade credit insurance can help you? Let's talk.

Call +61 8 6228 1142 to speak to a member of our Trade Credit and Surety team or to arrange a preferred time to discuss your needs.

Find out more about trade credit insurance


 

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