News that the financial crisis is causing retailers to demand government intervention to curb the powers (or even replace) credit insurers, is perhaps missing the point. And besides, at the current rate of bail-outs and taking controlling shares in business, we shall all be (un)civil servants by the year end…
As you know, trade credit insurance is purchased by businesses to insure their accounts receivable from loss due to the insolvency of the debtors. Incidentally, most retailers are insolvent, in that their Quick Assets represent about 10% of their Current Liabilities instead of 1:1 like 'normal' businesses. The monthly premium is calculated as a percentage of sales of that month or as a percentage of all outstanding receivables. In other words, credit insurers are calculating and spreading risk, and charging for the service (being what they do…)
There may be some issue with the scale of their charges (so Government should perhaps act to increase the number of providers, three major players, at last count (!), and drive down rates) but as businesses, they are entitled to make a call on when to withdraw insurance when they feel the premium to cover a given retailer-risk would be 'unsellable' to suppliers…
As usual, when it comes to the Crunch, NAMs & KAMs are on their own….
Why not work out the cost of credit for your dubious customers, and then do a risk analysis, (impact on your business & chance of them going bust) to decide your next move…before it is decided for you…?
Or perhaps watch our 'going bust' video while you wait !
Have a Good Weekend, regardless!
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