Starting a business is an exciting but stressful process, and keeping it afloat can be even more of a challenge. More than 60% of small businesses in Australia close within 3 years, and one of the most common struggles business owners face is cash flow. Shaun Davison from TJL Insurance has put together this short guide to Trade Credit Insurance and Export Credit Insurance with the help of PSC Connect.
Cash flow issues can be the result of a number of factors, and in order to combat the problem in the short term many business owners elect to go into debt temporarily. This is common and can be an effective way to manage the ebbs and flows of business throughout the year.
However, business debt can also be the result of more serious issues – such as bad debtors or other commercial risks of trade – and this kind of debt, if harboured for too long, can spell disaster for your business. There are a number of business insurance policies that can protect you in these circumstances.
The most effective cover to manage and reduce exposure to bad debtors is Trade Credit Insurance. Trade Credit Insurance protects debtor assets on the balance sheet. It does this by covering the policy holder for losses incurred as a result of:
- The insolvency of a customer
- Buyers refusing to accept ordered goods
- Customer default in paying an outstanding debt
This cover can also be extended with Export Credit Insurance. This policy covers not just debts but other commercial risks of trade and political risks that may prevent payments being made, such as:
- Failure of a bank to honour a letter of credit
- Repossession of assets
- Wrongful or unfair calling guarantees, bonds or contract warranties
If your business has the potential to be exposed to either of these issues, you should review your insurance policies to make sure you have the appropriate cover. Matt and Shaun from TJL Insurance have extensive business insurance experience and can give you advice on your insurance options to make sure your business stays profitable into the future.