With Bank loans being more difficult to obtain and interest being increased, businesses with high borrowings and low asset base are falling victims to insolvencies. A further evidence of the tight money supply is the noticeable increase in late payments being experienced by a large number of companies. Usually, those small to medium companies are the worse affected as capital raising is not available through stock placement on the stock exchange.

The alternative to these companies is to delay payments to their Creditors and as others perpetuate this, the business community at large feels its effect. This phenomenon creates a culture which unfortunately we are now experiencing in a number of countries and many small to medium companies in Australia are now also adopting this culture to stay competitive and to remain in business. If longer credit terms are not allowed, customers will be lost to competitors is what we now hear. Small to medium companies unfortunately rely to a greater extent on their suppliers and if and when their debtors take their time to pay, the chain lengthens.

As it is often the case, there are also a number of companies with strong Credit control who are not willing to accept late payment from their debtors. Pressures are applied to collect outstanding debts by a number of means and stopping supply of further goods on credit is one a solution employed. With a shortage of working capital, this creates additional difficulties for these companies to complete contracts/work in progress. Hence the incidence of insolvency increases and it is not surprising that we are now facing such a situation at the moment.

Fortunately a number of responsible managers have anticipated this and have taken steps to protect their businesses. These companies have reviewed their Credit policy and implemented strict control procedures in vetting their existing and new customers.
Rigorous credit assessments have been conducted and appropriate Credit Limits and terms have been imposed which have been followed by continuous monitoring.

As a result of the increase in the number of payment delays cases being of actuality, the collection companies are now busy and are becoming important allies by providing their service to the business community. Unfortunately although there are a number of these companies operating in Australia, due to under-funding and lack of empathy and experience, their results have not always been as expected. We do have however some very professional players whose experience and coverage provide an excellent service.

In recent time, we have seen the emergence of Credit Insurance in Australia. Some very prominent International Underwriters have acquired local underwriters and established themselves on our shores. They have introduced their dedicated sophisticated systems, which are able to obtain and collect trade information on most Australian companies. Through these systems, Insured companies are now able to electronically obtain automatic coverage for their buyers. The service level is such that Credit Limit decisions are provided in record time thus facilitating trade transactions. When losses are incurred, Claims are also being promptly met.

These companies are now rolling out a variety of products that are finding acceptance by many buyer companies. Their offers provide protection against insolvency and protracted default of domestic buyers. In addition to this facility, these Underwriters are also providing a collection service and legal cost coverage, which may be included in the cost of the policy. For export sales, in addition to the commercial risk of insolvency and protracted default, the risk of repudiation and political coverage are also available. Since Australia now operates in a global market, Credit Insurance has become an integral part of risk coverage consideration by responsible managers.

Since each industry and business operates at a different level and the needs of coverage may be difficult to access, traditionally, credit insurance policy also known as debtor insurance has been designed and tailor-made to fit each circumstance. As a result of this peculiarity, credit insurance has mainly been marketed and handled by broking companies with a dedicated specialist team who are able to propose and arrange suitable cover.

With the affluence of the international Underwriters now operating in Australia, competition has been very intense and users of credit insurance have been able to obtain very low rates. However, with the increase of default and insolvencies now occurring, we believe that premium rates will start to increase. The time to take up and embrace credit insurance is in our opinion has not been more appropriate.