Financial safeguards that empower business expansion

22 October 2024

Maintaining a healthy cash flow is the hallmark of any well-run business. But the ever-present risk of late or non-paying buyers can quickly jeopardize that stability, especially in a climate of economic uncertainty and growing insolvencies.

Several approaches can offer you early warning signs of distressed buyers who may be struggling to pay, as well as provide varying levels of protection against bad debt. Here are six strategies that are worth considering when seeking to safeguard your business against growth-inhibiting cash flow disruptions. 

A popular finance option for businesses of all sizes across a variety of sectors, invoice  factoring (sometimes called debt factoring) involves selling your unpaid invoices to a  third-party finance provider (or factor) – but at a discount on their paid-up value. The factor then takes on the responsibility of collecting payments from your customers.

Rather than selling your invoices, invoicing financing (also referred to as invoice discounting or accounts receivable financing) involves borrowing against a proportion of the value of your outstanding invoices. With invoice financing, you still own the debt, whereas with invoicing factoring you sell the debt and collection is handled by the factoring company. You can think of invoice financing as a short-term overdraft facility secured against an asset with a track record: your accounts receivables. This keeps open your option of extending the payment terms of select customers, making you more competitive.

A letter of credit is a guarantee from a bank that the seller will receive payment as long as certain delivery conditions are met. It is commonly used in international trade to reduce the risk of non-payment. 

Trade credit insurance stands out as a more stable and strategic way of protecting yourself against financial risk. The approach safeguards your cash flow against the risk of non-payment due to customer insolvency, protracted default, or geopolitical instability, giving you the peace of mind to your finance partners. Your bankers and other lenders can be reassured about the financial stability of your company and more inclined to offer financing.

Implementing stricter credit control policies and monitoring of customer payment behavior can go a long way to mitigate the risks associated with non-payment and enhance your business’s cash flow.

This involves setting clear credit limits, conducting regular credit checks, and  actively monitoring the financial health of customers and prospects. But that doesn’t have to be a challenge you take on single-handedly. As a part of its global trade credit insurance operations, Allianz Trade maintains an active global database of over 85 million companies and supports customers through its teams of country and sector experts with deep knowledge of local companies and risks.

While the option of payment terms has been one of the foundations of business for hundreds of years, there are plenty of modern business environments even today where credit is not an option.

Many B2B companies have still not found a way to offer net terms when selling online – though that is changing fast with the emergence of e-commerce solutions such as  Allianz Trade pay. 

In today’s volatile global market, managing cash flow well and safeguarding the business against credit risks are critical challenges for any finance team. Companies are increasingly looking to optimize their working capital by leveraging a mix of trade credit insurance, invoice factoring and invoice financing, as well as maintaining tighter credit controls and requiring some customers to pay upfront for goods. While select measures may provide short-term liquidity, trade credit insurance offers both financial protection and strategic value, preserving customer relationships, enabling business expansion, and providing cost-effective risk management.

As a global leader in trade credit insurance, Allianz Trade provides world-class solutions, underpinned by a global knowledge network of experts who are there to bring  confidence – and success – to your trading decisions.