Thomas Cook collapse highlights value of credit insurance

16/01/2020

With the Thomas Cook collapse driving bad debt claims to record levels, it is a powerful reminder for businesses to protect their cash flow against debtor insolvency.

Trade credit insurers received a record £271m in claims during the third quarter of 2019, largely driven by the demise of Thomas Cook, according to the Association of British Insurers (ABI).

This record-breaking figure was up from £82 million in the previous quarter and nearly double the previous high of £137 million in Q1 2009.

The ABI also revealed that the average bad debt claim also rose to the highest ever recorded at £67,300, up 228% on the previous quarter.

This shows how beneficial trade credit insurance can be, acting as a lifeline for businesses in these uncertain trading times.

Yet these claims only represent a small portion of the businesses impacted by the collapse of the package holiday company.

When Thomas Cook collapsed on 23rd September 2019 it had £9 billion of liabilities. Of this, £885 million was owed to trade creditors.

This suggests that a large portion were uninsured and therefore unprotected against the company’s insolvency.

In recent years we have witnessed the “domino effect”, where one company’s insolvency increases the insolvency risk for others. This puts day-to-day operations at risk and threatens the jobs of their employees.

That’s why trade credit insurance is such an essential resource as it provides businesses with the confidence to trade knowing they are financially protected when insolvencies occur.

If recent research is to be believed, the UK could be about to experience a surge in corporate insolvencies, making it even more important for businesses to protect themselves.

Global trade credit insurer, Euler Hermes, predicts corporate insolvencies will rise by 8% this year.

What is credit insurance?

Trade credit insurance, also known as bad debt cover, safeguards your cash flow in the event a debtor falls insolvent or takes longer than the agreed credit period to pay an invoice.

Essentially the credit insurance company guarantees payment for any goods or services supplied, subject to a designated credit limit.

While credit insurance can be provided on its own, it can also be supplied as part of an invoice finance facility.

Invoice finance additionally releases funding against the value of invoices to further protect businesses from the cash flow implications of trading on credit.

Are you protected?

Is your business protected against failures like Thomas Cook? If not, we can identify the most suitable solution for your needs.

Whether you’re looking for full cover, selective cover or an invoice finance facility with debtor protection, as a trusted commercial finance broker we will introduce you to the most suitable facilities and insurers.