Companies in the United Kingdom are showing increased demand for trade credit insurance, despite a fall in the overall number of insolvencies in the country, according to Marsh Ltd.
Increased concern about the vulnerability of trading partners, coupled with average rate reductions of about 20%, have sparked increased demand for trade credit insurance coverage, particularly among large U.K. companies, said Tim Fisher, leader of Marsh’s U.K. trade credit practice, in a statement.
This uptick in demand came at a time when insolvency rates in the United Kingdom were falling, Mr. Fisher said.
According to figures from the U.K. Insolvency Service, in the 12 months ended March 31, one in every 167 active companies in the United Kingdom went into liquidation compared with one in 165 in the 12 months ending March 31, 2013.
“Many organizations are more risk-averse as a result of the recession and are acutely aware that even a slight increase in bad debt and interest rates could derail their firm’s recovery as the economic outlook improves,” Mr. Fisher said in the statement.
Mr. Fisher said that while recent research had shown that the majority of U.K. companies now are optimistic about the economic outlook, 11% of firms regularly are borrowing up to their maximum bank overdraft limit, and “it is this which is fueling concerns about partner insolvency risk among corporates.”
Many companies are concerned about the effect that a potential interest rate rise could have on their trading partners, Mr. Fisher said.
“It can be incredibly challenging for businesses to identify struggling firms among their client base and in their supply chains,” Mr. Fisher said.
Trade credit insurance can provide credit management discipline and customer insight as well as protection against bad debt, he said.