Trade Credit insurance – secure trading in uncertain times

The UK construction industry has shown remarkable resilience in dealing with the economic uncertainty of several unprecedented events such as Brexit and Covid-19; with the devastating conflict in Ukraine prolonging this period of financial insecurity, many firms are now looking to the insurance industry for extra protection. Trade Credit insurance has become a lifeline for the construction industry, from SMEs to the UK’s largest companies, and many now view this cover as an essential part of their risk management strategy.

Whilst the latest Office of National Statistics (ONS) data shows continued post-pandemic construction growth up until the end of January this year; there’s no doubt the Ukraine conflict has already brought renewed challenges to the industry. The recent war has already sent fuel prices soaring and disrupted supply chains, so the industry once again finds itself having to deal with the inevitable delays on imported construction products which exposes them to the financial pressures associated with delayed completion.

Construction continues to be the hardest hit by insolvency

Throughout 2021 the construction sector was the most significant contributor to insolvency numbers representing 16% of all bankruptcies in December 2021, with 407 construction companies going bust. Construction also accounted for 16% of all company insolvencies throughout 2021.

Unfortunately, with no end in sight, the Ukraine conflict may mean we are likely to see more business failures in the coming months, and subsequently, may have to deal with the prospect of unpaid bills. With many firms finding their profit margins already impacted by the rising costs brought about by government measures such as increases in the living wage, inflation, and the shrinking value of the pound, there is a reduced capacity for managing the cost of other unexpected crises.

Scape chief executive Mark Robinson said:

“The sector’s resolve is likely to be tested further by the effects of the war in Ukraine on energy prices and the supply chain. Persistent challenges around timber and steel will only intensify. ”

“The inflationary pressures created here in the UK will be difficult to manage, particularly for SMEs that may be tied into fixed-prices contracts.”*

Trade Credit: A financial safety net

Unsurprisingly, demand for trade credit insurance has increased dramatically in the last few years, as construction businesses seek the protection it provides against customers failing to pay for goods or services provided to them on a credit basis, often due to insolvency. Once considered an optional extra, there’s no doubt that the stream of uncertainty brought about by global events has led to trade credit insurance increasingly being perceived as an essential component of a firm’s insurance provisions. Trade credit insurance can help give business leaders confidence, enabling companies to grow safe knowing that if a critical customer becomes insolvent, they are protected from the ‘domino effect’ that can cause businesses to fail.

Neon Mavromatis, Managing Director Construction, Kerry London said, “It is important to understand that a trade credit insurance policy is an evolving process of ongoing support and discussion that provides businesses with an early warning regarding the potential financial problems of the companies they are working with. Working with a trade credit specialist will help businesses maintain healthy credit facilities and enable their business growth, especially during periods of economic uncertainty.”

*Output rises but Ukraine conflict clouds optimism | News | Building

Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.

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