Global business uncertainty remains over Tariffs and tensions in the Middle East and Central Asia.  Recent forecasts suggest that global business insolvencies could increase by 7% in 2025 after increasing 12% in 2024. 

On average, 1 in 10 invoices becomes delinquent, causing financial strain for businesses of all sizes. This continues to prove the importance of trade credit insurance as a financial safeguard.

The Rising Risk of Insolvencies and Delinquent Invoices

The economic landscape is seeing a steady rise in the number of businesses facing insolvency, driven by factors such as global supply chain disruptions, inflationary pressures, and escalating tariffs. This is particularly relevant for businesses dealing with international trade, where external factors such as tariff increases and political instability can exacerbate financial challenges.

Additionally, 1 in 10 invoices becoming delinquent means that businesses are increasingly having to manage outstanding debts, often leading to cash flow problems. When businesses fail to pay their invoices, suppliers are left vulnerable, and the risk of not being compensated for delivered goods or services grows.

In such an environment, businesses must take proactive steps to protect their financial health, including investing in trade credit insurance.

What is Trade Credit Insurance?

Trade credit insurance is a type of cover designed to protect businesses from the financial risk of unpaid invoices and customer insolvencies. It acts as a safety net, covering the majority of the invoice cost if your customers fail to pay for goods or services, due to financial difficulties or insolvency. This coverage ensures that businesses are able to maintain a steady cash flow, even when facing delayed or missed payments.

Tips to managing your cash flow risks

• Assess Your Exposure to Risk

Start by evaluating your business’s exposure to the risks of insolvency and invoice delinquency. This involves reviewing the financial health of your customers, particularly those in foreign markets, and understanding how susceptible they are to economic disruptions, including tariff changes. Consider how much of your business relies on credit sales, both domestically and internationally.

• Review Your Credit Limits and Payment Terms

Reassess the credit limits you extend to customers, especially those with whom you have a limited or volatile trading history. Tightening credit limits or shortening payment terms can help protect your cash flow while ensuring you don't over-expose your business to high-risk clients.

In light of global trade tensions, especially related to tariffs, consider requiring partial upfront payments or deposits for international orders to reduce your exposure to delinquent invoices.

• Monitor Your Customers’ Financial Health

Regularly monitor your customers’ financial stability and creditworthiness. Many trade credit insurers provide access to credit reports and monitoring services, allowing you to track any financial changes or signs of potential insolvency. In light of the forecasted increase in business insolvencies, keeping a close eye on your customers’ financial status will help you make informed decisions on extending credit and mitigating risks.

• Diversify Your Customer Base

Over-relying on a small group of customers can increase your vulnerability to payment defaults. Consider diversifying your customer base, particularly by exploring new markets, to reduce the impact of a single customer’s failure to pay. Expanding your business beyond any single market or region, especially those exposed to tariffs, can provide a level of protection and lessen the risk of your revenue stream being disrupted.

By taking proactive steps such as assessing your exposure, purchasing the right insurance coverage, monitoring your customers’ financial health, and working closely with your insurance adviser, you can minimise the financial impact of unpaid invoices and safeguard your business from the negative effects of increasing insolvencies and global trade challenges.

If you're unsure about the right trade credit insurance policy for your business, it’s a good idea to consult with an insurance adviser who can help tailor a solution to your specific needs and ensure you are well-protected.

General Advice Warning

This communication including any weblinks or attachments is for information purposes only. It is not a recommendation or opinion, your personal or individual objectives, financial situation or needs have not been taken into account. This communication is not intended to be a constitute personal advice. We strongly recommend that you consider the suitability of this information, in respect of your own personal objectives, financial situation and needs before acting on it. This document is also not a Product Disclosure Statement (PDS) or a policy wording, nor is it a summary of a particular product’s features or terms of any insurance product. If you are interested in discussing this information or acquiring an insurance product, you should contact your insurance adviser to obtain and carefully consider any relevant PDS or policy wording before deciding whether to purchase any insurance product.