Why now is the time to buy trade credit insurance

Our latest figures on the number of claims for late or failed payments among UK companies may show declines in most sectors in the first half of 2024 from our recent all-time highs last year. But, despite some improvement, now is the perfect time for businesses to invest in credit insurance.

Looking at our Claims notifications for H1 and our Payment Practices Barometer, the data encouragingly points to an improving picture for many UK sectors. This ranges from hospitality to chemicals to textiles.  

Notably, it also includes construction, where claims have fallen by 28% in the first half of 2024 compared with the first half of 2023, a sector that has been particularly hard hit. Trade credit insurance has always played an important role in the construction sector, where companies tend to face substantial upfront costs and long payment terms. This reflects a recovery for parts of the sector after a pandemic support hangover that put some construction firms out of business. Conditions are broadly improving as early indications show purchasing improvements now that inflation is finally decreasing, and as non-residential contractors work through the last of their legacy issues. Yet, the construction sector remains under pressure. Construction insolvencies remain persistently high and in the short term, this is unlikely to change. Plus, given construction contracts are often negotiated far in advance - a longstanding challenge for the industry - contractors will continue to feel the pain from high energy and materials prices, even as they have started to come down. 

Consumer durables enjoyed the biggest decline in payment defaults in H1 2024, down 29%, with a rapid decline in claims by 42% month-on-month from May to June. Retail sales have, for the most part, shown some improvements from the same period in 2023, benefiting the sector. However, the sector remains fragile. Firms selling big ticket items like appliances will be hoping for further improvements in the economy to boost sales; while the onset of summer should encourage consumers to invest in new garden furniture.

Atradius’ report reveals the textiles sector – an often under looked and underappreciated contributor to the UK economy – has seen a 39% decrease in payment defaults in the second quarter of the year, with an overall decline of 11% from January to June this year. The sector, which is heavily dependent on the economic backdrop and consumer spending, has suffered acutely during the cost of living crisis, so it’s promising to see improvements amid inflation declines and as consumers feel more confident about putting their hands in their pockets. The apparel and fashion sector is particularly sensitive to business rates, so if and when the new Labour Government goes ahead with the reforms promised in its manifesto, then many businesses should receive a significant boost.

Although we see that some sectors have seen improvements in the number of claims for late or failed payments, other sectors have not been sharing the same experience.  For metals, transport and paper companies the prolonged economic and sector challenges are still having significant impacts and their payment defaults have increased in H1 2024. And it is crucial to keep in mind that the sectors reporting a drop in claims are still experiencing high levels of claims - the improvements are in comparison to peak levels that we have seen post-pandemic. 

Late payments continue to be a significant concern for UK businesses. Data from our Payment Practices Barometer¹, an annual survey of companies reporting their experience of B2B payment practices, has shown that 40% of B2B sales are currently affected by late payments, while bad debts stand at an average of 7% of all B2B sales. These late payments are being driven by liquidity issues among customers. The hardest hit sector, with payments being collected on average two weeks past the due date, is consumer durables. 

And whilst the economy is showing some signs of improvement - as we have narrowly avoided entering into a recession - any recovery will likely remain weak. Despite the slight decrease in interest rates that was announced last week the rate is still high, inflation rates remain a cause for concern, and the rate of insolvencies is still increasing, in June 2024 insolvencies in England and Wales were up 16% month-on-month and 17% year-on-year². It is safe to say we are not out of the woods yet. 

A good time to buy trade credit insurance

In these ongoing challenging conditions, as always, companies need to be aware of how to protect themselves. We recommend trade credit insurance for any business dealing on credit terms. And now is a good time for businesses in the UK to buy trade credit insurance.

Why?

Firstly, because as claims begin to fall, competition between insurers increases, pushing the underlying price of trade credit insurance down. Businesses can buy trade credit insurance on the most favourable insurance terms and premiums in competitive markets. 

Our latest Payment Practices Barometer has also revealed that looking ahead there is widespread worry about increased risk of insolvencies. The main concerns for businesses looking forward are the health of the domestic economy, with high interest rates and tight monetary policy constraining financial access and investment, geopolitical uncertainties that may destabilise costs and delivery times, and the impact of tighter environmental regulations. These concerns highlight the importance that businesses have proactive financial management and have strategies in place, like choosing to purchase credit insurance, to navigate these challenging economic times. 

Finally, contrary to our decreasing premium, our total exposure is growing year-on-year. Our total potential exposure for UK risk buyers increased 19.2% from 2021 to 2022, 7.6% from 2022-2023 and in June 2024 our exposure has already increased from full year 2023. So we can cover more of a businesses trade agreements for less than they were previously paying. 

In taking advantage of this market, businesses can trade with confidence and explore new markets or products, knowing they are protected against credit risks.