by Adam Lysle

Nearly every person in Australia has an insurance policy. CTP, car insurance, home and contents, travel etc. Nearly every business has some type of insurance be it for public liability, fire, theft etc. However, it amazes me that not many businesses have considered a trade credit insurance policy of some kind.

Aside from the fact that there are a number of different methods of establishing insurance like this as well as taking into consideration there are more than a handful of trade credit insurance providers in Australia, the recent aggressive stance by the Australian Taxation Office should be taken as the catalyst for taking some preventative action.

Over the last 6 months, the ATO has wound up a large number of companies. In fact, ASIC have released their statistics which reveal from March 2015 to June 2015, there was a 39% increase of companies entering external administration with 2,734 companies hitting the wall in the quarter ending June 2015 alone. 1,000 of these companies are domiciled in New South Wales which is the highest in the country. Not since the quarter ending September 2013 had one quarter been that high.

With on average 1,000 companies a month falling by the wayside; it will only be a matter of time that businesses will come across a customer that succumbs to external administration. The key questions that should be asked are:

  • How many key customers could your business lose before it would have a real impact on your cash flow?
  • Has this simple question been fleshed out in your current business plan?
  • Do you have a strategy to ensure the survival of your own business if more than one customer can’t pay their debts owed to you?

Nearly every business I come across on the insolvency side of the ledger has been hit with more than one collapse of a debtor. Situations like these can be a real threat to the survivability of any business.

Establishing links with debt finance companies is also a great way to strengthen the collectability and regularity of cash flow into your business. Secondly, taking out a trade credit insurance policy is also a great way to ensure that if the worst does happen, business can keep going.

I, along with my colleagues at Veritas Advisory too often see examples of business collapsing through no real fault of their own and there have been a number of examples lately where mitigation strategies like debt finance and trade credit insurance could have prevented disaster. Early advice from reputable advisors can underpin the survivability of business.

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