Transportation companies are essential for delivering goods and ferrying workers in various sectors. Yet many firms face challenges, such as controlling higher labour and fuel costs, in a changing landscape.
Digital transformation has created opportunities and potential risks. These risks include cyberattacks, which have also added to pressures.
But what happens if a customer goes bust and can’t pay for the goods or services they’ve received? And, when your supply chain is disrupted, what happens to the goods being transported?
Trade credit insurance can help your firm get paid for goods or services. Here’s how:
What is trade credit insurance?
Trade credit insurance helps protect you against customers failing to pay invoices provided on a credit basis (where the buyer pays later).
However, helping you operate when another company can’t pay due to insolvency or lack of funds isn’t the only advantage of trade credit insurance. It can also accelerate your business’ growth by safeguarding your cashflow. Plus, it could help your business to succeed when operating with unfamiliar customers or export markets.
Growing your business
Trade credit insurance improves your financing by reassuring banks and business partners that your loans will still be paid. Even if there are issues with your supply chain.
For your existing customers, you can build loyalty by offering them competitive credit terms. At the same time you can also monitor their risk of insolvency.
It can also help you to find new customers confidently. This is because it alleviates concerns about whether they’ll pay invoices on time or what would happen if they’re declared insolvent.
Dealing with unpaid invoices
According to research from the Federation of Small Businesses (FSB), 50,000 business closures could be avoided each year if late payments had been made on time. Unpaid invoices can have a big impact on cash flow. This is especially true for smaller businesses, and can also impact stress and productivity levels.1
Meanwhile, other research indicated that outstanding invoices and access to credit were among the problems for SMEs.
Some firms, particularly smaller companies, were worried about late payments of invoices. More than a quarter of firms (up to 28%) admitting late payment problems had got worse between 2022 and 2023.2
These non-payments and delays can have a massive impact on your cash flow and business operations. This could put your transport business at risk.
Managing the risks
Research found that one in six SMEs (17%) had difficulty accessing credit since the cost-of-living crisis hit. So, finding a transport company that offers potential new customers competitive credit terms would be hugely appealing.2
And while adding to your customer portfolio, trade credit insurance offers you the peace of mind to win new business in confidence. This is particularly reassuring when dealing with customers you haven’t worked with for long.
You can rest knowing that you’d still get paid in the event of late payments or insolvency. And this is a real concern given the many challenges facing businesses today.
Companies failing at fast rates
According to official data, there were 6,208 company insolvencies registered in England and Wales between July 1, 2023, to the end of September 2023. This was 10% higher than the same period in the previous year.3
The Insolvency Service’s data for England and Wales showed most industries, which included transportation and storage, saw increased insolvency numbers in the 12 months ending September 30.3
Mounting financial pressures are among the factors blamed for the rise in the number of firms at risk of collapsing.4 Pressures such as:
- increased fuel and labour cost;
- higher inflation;
- and higher interest rates.
Covid-related loans and government support schemes kept many businesses afloat during the pandemic. But the end of these has also caused more corporate distress.5
The amount of companies in England and Wales going out of business is set to be the highest since the 2009 financial crisis.4
Challenges facing transport companies
Transportation companies are among the industries that have struggled to manage rising costs while also controlling their own risks.
Transport firms continue to adapt to changes and challenges in the industry. This includes the increasing pressures to adopt digital technologies.
The pandemic also affected transportation, with online sales driving up haulage costs. This forced tighter delivery schedules. But it also meant pushing for investment in better technology and communication equipment.6
Takeaways
Trade credit insurance offers distinct benefits. This is particularly true in the areas of risk mitigation, growth, and enhancing working capital. In summary, for businesses in the transport sector:
Risk Mitigation
- Helps protect businesses against the default of their customers, reducing the risk of non-payment.
- Can enhance credit management by offering insights into the creditworthiness of potential customers.
Growth
- Helps facilitate business expansion. Enabling companies to safely offer more competitive credit terms to new and existing customers.
- Can increase confidence in exploring new markets. Or expanding the customer base without fear of significant financial loss.
- Helps secure better financing terms from banks. This is because insured receivables are often viewed as more secure collateral.
Enhancing working capital
- Helps improve cash flow. Protects against late or non-payment, ensuring more predictable income streams.
- Can lead to improved borrowing terms, as lenders may view businesses with insured receivables as lower risk.
- Allows businesses to release capital as a buffer against bad debts. They can reallocate resources for growth and operational needs.
What you can do
Get in touch with a transportation insurance specialist, and find out the best way to manage your risks.
Visit our trade credit insurance page to find out more about cover that suits your business to support growth and protect its continuation.
Sources
1. fsb.org.uk/time-is-money
2. youtalk-insurance.com/smes-worry-over-late-payments-and-access-to-credit
3. gov.uk/commentary-company-insolvency-statistics-july-to-september-2023
4. bbc.co.uk/business-67261798
5. itv.com/surge-in-companies-facing-collapse-as-government-chases-down-covid-debts
6. supplychaingamechanger.com/the-biggest-challenges-facing-transport-companies
Join our upcoming webinar!
Join us on Wednesday 28 February at 10am and learn the strategies to reduce your credit risk and improve access to finance for growth.
