Credit Insurance reduces the risk of loss

Business confidence in New Zealand has hit a new 20 year high with over 70% of businesses polled saying that they are optimistic about general business conditions, according to ANZ Business Outlook Survey (February 2014).

The growing confidence leads to increased sales and inevitably the need to increase or extend credit to customers.

This is evident in many sectors of our economy, from construction to retail spending and increased exports.

Larger credit exposure comes with the risk of not being paid.

We have recently seen the collapse of several companies in the New Zealand market, from printing giants Geon Group, Media Works and construction giants Mainzeal to restaurant franchise operator Nando’s.

Some of these companies owed millions of dollars to their creditors.

Domino Effect

As a direct result of the Mainzeal collapse, we saw a domino effect with Hills Flooring failing after 53 years in business.

There are concerns that this trend will continue throughout 2014 as New Zealand faces a patchy economic recovery.

Further to this, many of our export clients are seeing a slowdown of payments from Australia, our second largest trading partner.

The Australian economic slowdown has been well publicised and many New Zealand exporters are becoming nervous about being paid.

Credit Insurance provides protection in the event of the customer’s insolvency.

It is gaining popularity in New Zealand with many medium and large size businesses.

Credit Managers are utilising credit insurance more regularly as a management tool for their accounts receivable.

It allows good discipline with internal credit procedures through customer vetting, monitoring overdue accounts and undertaking collection action. If the debtor fails to pay due to their insolvent position, you can then claim up to 90% of the debt from the insurer.

Each policy is tailored to the clients’ requirements and hence it is important that you engage a specialist broker who understands the market and can provide expert advice on debtor management.

Case Study

In our business, credit for our large trade customers provides a smooth-running operation for our customers. Strict processes for approving credit combined with credit insurance safeguards that part of the business. It is part of our risk-management strategy and gives our Board comfort when extending credit. Having Credit Insurance has provided an assurance or certainty as to what would happen in case of loss. After searching for credit insurance for a number of years, Magsons Hardware Ltd (t/a Mitre 10 Mega Henderson, Mitre 10 Mega Botany and Westgate Mitre 10), chose to go with the solution that AON proposed through the insurers, Atradius. – Sunita Patel, Finance Director Mitre 10 MEGA Henderson, Botany and Westgate Mitre 10.

Jeffery Nathan is Corporate Account Manager of Aon Insurance Brokers New Zealand, Sponsor of the ‘Best Young Entrepreneur of the Year’ category of the Indian Newslink Indian Business Awards 2014.

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