The economic landscape can be unpredictable, and the recent surge in bankruptcy cases is a stark reminder of this reality. According to a recent article, more than 41,600 new bankruptcy cases were filed last month, marking the 13th consecutive month of year-over-year increases. Businesses are grappling with financial challenges like never before, making it crucial for them to explore risk management tools such as trade credit insurance. In this blog post, we'll discuss how trade credit insurance can provide a safety net during periods when bankruptcies are on the rise.
Understanding the Rising Bankruptcy Trend
The persistent rise in bankruptcy filings highlights the financial strain experienced by individuals and businesses alike. Factors such as the pandemic's economic fallout, mounting debts, and unforeseen life events have contributed to this trend. As Gregg Morin, Epiq Bankruptcy's vice president of business development and revenue, aptly puts it, "The continued year-over-year increases indicate the anticipated growth of bankruptcy filings is becoming a reality." Amidst this uncertain economic environment, businesses must take proactive steps to protect their interests and maintain financial stability. One such proactive measure is trade credit insurance.
How Trade Credit Insurance Works
Trade credit insurance, also known as accounts receivable insurance or credit insurance, is a risk management tool that safeguards businesses against non-payment or default by their customers. Here's how it works:
Policy Purchase: A business purchases a trade credit insurance policy from an insurer.
Customer Assessment: The insurer assesses the creditworthiness of the business's customers or clients.
Coverage Agreement: The insurer provides coverage for approved transactions, protecting the business against losses due to non-payment, bankruptcy, or insolvency of customers.
Claims Settlement: If a covered event occurs, the business can file a claim with the insurer, who will compensate them for some of the outstanding debt.
How Trade Credit Insurance Helps During Rising Bankruptcies
Enhanced Risk Management: Trade credit insurance allows businesses to make informed decisions about extending credit to customers. It helps identify potential risks and reduce exposure to customers with deteriorating financial health.
Financial Protection: When customers face financial difficulties or file for bankruptcy, the insurance policy kicks in to cover the outstanding debts. This helps businesses maintain cash flow and financial stability.
Expanding Market Reach: With the assurance of credit insurance, businesses can confidently explore new markets and customer segments, even during uncertain economic times.
Competitive Advantage: Offering credit insurance-backed transactions can be a selling point that attracts customers who seek security in uncertain times.
Peace of Mind: Trade credit insurance provides peace of mind, allowing businesses to focus on growth and strategic objectives rather than worrying about customer defaults or bankruptcies.
In a world where economic challenges and bankruptcy rates are on the rise, trade credit insurance emerges as a vital tool for businesses. It empowers them to navigate uncertain waters with confidence, protect their financial interests, and continue their operations despite market volatility. By proactively managing credit risk through trade credit insurance, businesses can safeguard their stability and resilience in the face of economic uncertainties. As the saying goes, "Hope for the best, but prepare for the worst," and trade credit insurance is a wise step in that direction.
Disclaimer: The information provided in this blog post is for general informational purposes only and should not be construed as professional advice or relied upon as a substitute for legal, financial, or other professional advice.