Navigating challenges in today’s economy
Australian businesses face mounting challenges in a tough economic environment. Persistent inflation, skills shortages, and rising wage costs are squeezing profit margins.
The Reserve Bank of Australia’s (RBA) 14 interest rate hikes since May 2022 have pushed the cash rate to 4.35% (as of January 2025), intensifying financial strain. This has led to record insolvencies across key sectors, with a 43% increase reported in the first quarter of the 2024-25 financial year compared to the previous year.
Industries like construction, retail, wholesale, and food and beverage are among the hardest hit.
Trade credit insurance and proactive risk management strategies provide the tools necessary to adapt and thrive, even amid uncertainty.
What is trade credit insurance and how does it work?
Trade credit insurance protects businesses from financial losses caused by nonpayment of commercial debts. It covers risks like buyer insolvency, prolonged payment delays, or other credit issues that impact cash flow.
With trade credit insurance, businesses can confidently extend credit, manage insolvencies, and seize growth opportunities in competitive markets.
Key takeaways
To fully leverage trade credit insurance, businesses should follow best practices:
Report overdue accounts on time
Foster transparency between customers and insurers
Regularly review credit limits to align with evolving exposures
When a debtor enters voluntary administration or becomes insolvent, creditors often face significant losses due to unpaid invoices. Trade credit insurance can mitigate these losses by compensating the insured business for outstanding receivables.
Key benefits of trade credit insurance
Enhanced access to funding: boosts banks’ willingness to lend, often at more competitive rates, by securing your receivables.
Confidence to extend credit: supports growth by allowing businesses to safely work with new or international customers who might otherwise be considered high-risk.
Proactive financial insights: provides early warnings of buyer instability, helping you address potential issues before they escalate.
Ongoing credit monitoring: tracks customer creditworthiness and assigns credit limits, offering peace of mind for policyholders.
To summarise
Trade credit insurance is an essential tool for protecting businesses against buyer defaults. It offers coverage - subject to policy conditions - against non-payment for goods or services sold on credit.
Discover how trade credit insurance can act as a financial safety net, helping maintain stability and cash flow during debtor insolvencies. Download our report for more insights (on the right for desktop users and at the bottom for mobile users).
The contents of this publication are provided for general information only. Lockton arranges the insurance and is not the insurer. Whilst the content contributors have taken reasonable care in compiling the information presented, we do not warrant that the information is correct. It is not intended to be interpreted as advice on which you should rely and may not necessarily be suitable for you. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication.
