Protect your business against payment risks.
Construction is a crucial industry in Australia, providing essential infrastructure, commercial buildings, and residential dwellings. However, in times of macro challenges, it faces magnified risks, particularly when it comes to managing cash flow and credit risk.
Support from government and central bank monetary policy through the pandemic period enabled companies to continue trading with historically low default rates. As we exit this period the industry faces a perfect storm of challenges from supply chain disruption leading to project delays, significant cost inflation from materials, energy prices and labour shortages and fixed cost contracts resulting in a tough reality of default or completion with significant loss.
In the last year several significant companies entered administration. The downstream impact of unpaid creditors along with the wider macro factors are sending ripples right through the industry. According to ASIC statistics for Construction so far in financial year 2023 insolvencies are 82% higher than the same period in 2022. Construction is the largest contributor to Australian insolvency statistics, two times greater than the next highest – food and accommodation services.
Trade credit insurance is one way to mitigate credit risk in the Australian construction industry. This type of insurance provides protection against non-payment by your customers.
Trade credit insurance covers up to 90% percentage of your accounts receivable against non-payment due to insolvency, bankruptcy, or protracted default. If a customer fails to pay an invoice, the insurance company will pay out the insured amount, minus any deductibles.
In Australia, trade credit insurance can also include credit risk assessment, monitoring, and debt collection services, which can help you manage credit risk and prevent losses.
In the Australian construction industry, payments are often delayed, and there are many parties involved, such as subcontractors, suppliers, and owners. This complexity can create payment risks, which can impact the cash flow of your business and lead to financial difficulties. According to insurers the leading reason for business failure was inadequate cashflow to cover their immediate obligations.
Trade credit insurance can help you manage these risks by providing financial protection and enabling you to extend credit to your customers with greater confidence. It can also help you secure financing from banks and other lenders, as they may require you to have trade credit insurance in place to manage credit risk.
Additionally, trade credit insurance can provide peace of mind and allow you to focus on your core business activities, rather than worrying about payment risks and debt collection.
When choosing a trade credit insurance policy for your business, it's important to consider:
Trade credit insurance can be a valuable tool for managing credit risk and protecting your business against non-payment in the Australian construction industry. It can help you secure financing, manage cash flow, and provide peace of mind, enabling you to focus on your core business activities.
If you're interested in understanding how trade credit insurance can support your business or a free credit management health check, speak to our specialist Trade Credit team at WTW.
