Richard Miller, Director and Head of TradeRisk Solutions at PIB Insurance Brokers, provides an overview of the current risk environment and suggests steps that companies can take to manage their cash flow and protect against non-payment going forward.


It is clear that the financial effects of Covid-19 will have ramifications deeper and longer into the global and local economies than has ever been experienced.

The current situation is quite different to the 2008/09 financial crisis given the lockdown measures that have been in place and it is difficult to know how the world will look as we emerge from the current crisis.

In the run up to the pandemic we were already seeing an increase in corporate insolvencies, tighter underwriting criteria, reducing capacity and insurers starting to come off risk for certain sectors, countries and buyers, together with some syndicates in Lloyd’s either closing down or not writing credit insurance moving forward. Moreover, the rise of protectionism and tariffs were impeding global trade, which was trickling down to a macroeconomic level.

In the UK in 2019:

  • Q3 showed average bad debt claim pay outs at £67,000 (up over 200% on Q2)
  • Q3 claims increased to £271mn from £82mn in the previous quarter
  • Q2 showed bad debts at their highest since 2009 with around 50-plus claims being made every day (up 60% on 2017)
  • Meanwhile, in Q1, £5mn was paid out weekly by trade credit insurers (12% higher than 2017 and the highest since 2009)

However, there was still appetite for risk in the market and credit limits were being written.


How will the credit insurance market react?

It is obvious that there will be a sharp rise in insolvencies where companies have been forced to halt operations due to lockdowns, which, in turn, will result in an unprecedented increase in claims.

It is fair to say that the Covid-19 outbreak has reduced insurers’ appetite for risk. As a result, going forward, aside from transactions that are already underway – which are generally being covered – insurers are actively reducing their risk exposure across their portfolios through limit reductions and cancellations, specifically with regards to high-risk sectors such as retail, leisure, consumer electronics, textiles, metals, oil & gas and travel. However, it must also be pointed out that those sectors worse hit are the ones in which many insurers already had a cautious attitude towards pre-Covid-19.

This stance may be temporary, depending on the speed of economic recovery and UK government assistance.

The UK government has confirmed that it will work with the credit insurance industry to deliver a temporary reinsurance scheme to protect businesses because of the detrimental economic impacts of the Covid-19 pandemic.

The scheme will allow businesses continued access to insurance cover to protect them against the risk of a bad debt destabilising them.

It will be delivered through a temporary agreement with those insurers which have signed up to the scheme, and will cover domestic trading (UK-to-UK trade) and exporting firms.

No scheme will suddenly make a bad risk good: it cannot. The primary underwriting metric is based on the strength of a balance sheet and the financial viability of a business. The scheme is in place for situations where, if Covid-19 had not happened, then the creditworthiness of the buyer would have remained unaffected.


How can businesses manage their cash flow and protect income?

The PIB Trade Credit Insurance Practice which incorporates the CMR Insurance Services team, has a range of solutions that can protect a business against non-payment.

These range from single invoice cover through to managed multi-buyer policies, single buyer policies, excess of loss placements, political risk insurance, surety and global structured programmes.

Despite all the doom and gloom in the insurance market and beyond, insurers are still offering quotes and terms for those risks that are well managed, and for companies with robust credit management procedures and a good trading history.

Whether you have a credit insurance policy or not, there are certain steps that you should take to protect yourselves against non-payment.


  1. Know your customer

You should always carry out regular background and financial checks on your customer, no matter how well you know them.

If it’s a new customer, make sure they exist – fraudulent activity is on the rise along with ghost invoicing.

Obtain trade references.

Carry out a credit check from a reputable credit agency, if possible, with real time information.

Do not sell more product than you believe the customer can pay for – no matter how tempting it is to increase sales. Credit information providers will often provide you with a guide credit limit and, of course, credit insurers will provide you with a credit limit.

However, it also worth conducting your own checks. Some companies will apply twice the monthly sales figure to a customer as a credit limit (subject to due diligence and references, etc, being in order). This does, however, need constant monitoring and can be a useful tool for checking the customer’s buying and paying experience.

An alternative and more popular calculation is the lower of 10% net worth or 20% working capital (net current assets), but only if there is a pre-tax profit.

How did they contact you and why did they contact you? There is no harm in asking a new customer how they heard of you and why they have chosen to buy from you. It’s good market research.

Have you met the buyer? Whilst in these times it is unlikely you will meet in person, have you spoken to them over the phone, Skype or Zoom?

Have you reviewed their financials and management accounts; are they a financially viable company able to pay what they owe you? Have they provided you with any references?

Conduct your due diligence thoroughly and always in line with your credit control procedures.


  1. Payment terms

Make sure any open account payment terms are adhered to.

Do not extend payment terms beyond your normal sales contract terms and conditions. If possible, try to reduce payment terms.

If you are uncomfortable in offering payment terms, look to secure a deposit or down payment in advance of shipment.

Always try to have in place an “all monies retention of title” clause in your contract. This way you can endeavour to get your goods back if they have not been paid for.

If there is security available, then try and obtain it. This could be in the form of a parent company guarantee, a ministry of finance guarantee (if you are exporting to a government-owned entity or project) or a bank guarantee or letter of credit. The non-honouring of all these instruments can be insured as well.

If a buyer asks to extend payment terms, you need to know why they want an extension and when they will pay you (confirmed payment date). Even if you agree another 30-day extension, you must be safe in the knowledge that this will be met.


  1. Monitoring
  • Once you have sent your goods out the door or have completed your services, you must now wait for payment to be made. This could be a matter of days or sometimes up to 120 or 180 days, or even longer.
  • During this period, it is imperative that you keep in contact with your customer.
  • Check to make sure the goods were received and in good order.
  • Conclude and resolve any disputes over goods or paperwork.
  • Obtain written acknowledgement of both of the above from your customer.
  • Continue to adhere to your credit procedures.
  • Monitor the customers business – look out for any adverse information that might be available in the public domain.
  • As you get closer to payment due date, contact the customer to make sure they are aware of when they have to pay.
  • Some companies will call 10 days before, again five days before and the day before, all followed up in writing and documented.
  • Don’t be scared to ask for payment – it’s your money!


We hope that you found this information to be helpful. The PIB Trade Credit Insurance Practice will be happy to advise on any aspects of your existing cover, conduct policy reviews or investigate new policy placements.

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