If your customers are paying late or can’t pay you at all, your cash flow will be at risk. If your suppliers cannot deliver materials on time, your own production will slow down, making it difficult to fulfil your own commitments. Keep an eye on these warning signs of potential supplier or customer insolvency:

• Are they taking longer to settle invoices or make deliveries?
• Have they asked to renegotiate contracts, to extend (if they are customers) or to shorten (if they are suppliers) payment terms?
• Is there a trend toward disputes over billings or deliveries?
• Has your customer recently lost a major client/supplier?
• Are they attracting negative press coverage?
• What is happening in their sector or country? This is part of the economic climate in which they operate and can impact customer insolvency. Check out our country risk reports and sector risk reports reports for insights.
• In addition, keep your eye on news reports or business organisations which may circulate information about your clients: large turnover among staff and executives, or difficulties such as meeting their payroll.  

There is also the natural climate to take into account. In the last several years, extreme weather, climate-change-related events, and the Covid-19 pandemic have halted business operations or shut down supply chains at an accelerated rate.

Taking the following steps within your own company can help you prevent risks and create insolvency protection:

• Shorten your supply chains and avoid concentration in one geographic region.
• Always evaluate your clients’ creditworthiness before signing agreements.
• Make sure your client portfolio is balanced so you are not relying heavily on one or two clients for most of your income.
• Create a cash buffer that your business can access in an emergency.
• Review the credit terms you extend to customers and suppliers, and benchmark your trade terms against the rest of your industry. For example, you could include a right to terminate the contract should your customer or supplier enter an insolvency process, or a right to charge interest on late payment and to recover your costs of enforcing payment.
• Go digital as much as possible to make “pivoting” easier. Think of the retail shift to online when Covid-19 shut down bricks and mortar establishments overnight.
• Invest in payment monitoring and debt recovery processes, including professional insolvency risk services.   

Insolvency protection is an inexact science given the myriad risks that exist outside the control of your own business operations. But if not caught early – for example with the help of insolvency risk services – you could find yourself trapped in a downward spiral of insolvency risk.

In particular, when insolvency is the result of something unforeseen, insolvency protection insurance safeguards your cash flow and considerably limits the damage of credit risk to your own company by getting you compensation in case of bad debts.  

For example, market-leading trade credit insurers such as Allianz Trade, in addition to helping you avoid bad debts and compensating you if they happen, provide additional insolvency risk services as part of the trade credit insurance cover, such as.

1. Debt recovery, with the skills and experience needed to maintain an effective, on-going dialogue with debtors and their legal teams, no matter which country or jurisdiction they operate i

2. Predictive protection by helping you choose the right customers and the right markets to avoid bad debt in the first place, thanks to acute financial analysis.

3. In-depth market intelligence, providing you with 360-degree visibility on business sectors and impending difficulties.

Remember, swift reaction time is key. The ideal scenario is to identify and act on warning signs before your customer becomes insolvent. Insolvency protection insurance can mitigate customer insolvency risk, preserve cash flow and help you grow your business.