Published Monday 17th May 2021
With macro-economic issues like the fallout of COVID-19 and Brexit to contend with, many UK businesses must do all they can to ensure they are financially protected.
Having a good understanding of Bad Debt Protection and how it could benefit your business is vital. Even thriving businesses can fall prey to a downward spiral caused by just a couple of unpaid invoices.
Combining Bad Debt Protection with other essential financial services like cost reduction and effective expense management strategies is one of the best things you can do to ensure your business has the resources to flourish.
To find out how Expense Reduction Analysts could support your cost reduction plans, get in touch today.
What is Bad Debt Protection?
Bad debt is incurred when your customer cannot pay for goods or services already provided by your business.
Frequent non-payments can cause rapid decline for previously successful businesses, so it’s important to address this issue effectively.
Bad Debt Protection refers to the insurance a business can get to protect itself from customers and clients who fail to pay their invoices. Any loss prompted by this failure to pay is absorbed by your finance provider rather than your company.
The Features of Bad Debt Protection
Investing in Bad Debt Protection can:
- Offer protection for up to 100% of debts depending on the provider.
- Be applicable to all or certain customers.
- Come with additional support and administration from the provider.
- Protect businesses in all sectors from the risk associated with bad debt.
The Challenges Caused by Bad Debt
How does bad debt detrimentally affect business?
- Reduction in cash flow.
- Inability to pay your own creditors.
- Make growth impossible.
- Damage your image.
Being faced with unexpected bad debt can not only reduce your cash flow for everyday operations but can also prevent you from paying your own creditors, landing you in further debt.
Bad debt will also threaten any plans for growth and will engender feelings of uncertainty in your other clients and employees, potentially damaging your business’s image.
Questions around how swiftly UK businesses can recover from the hits dealt by the pandemic and new regulations relating to Brexit mean that many companies are already in positions of instability. Combining this with bad debt could bring the threat of insolvency much closer.
How Can Bad Debt Protection Benefit You?
So, why could Bad Debt Protection be instrumental in safeguarding your business?
Risk Management
Ultimately, getting Bad Debt Protection is a good way of managing risk. With the potential for bad debt looming, you risk not having sufficient working capital. With extra protection, you can have peace of mind that you are equipped to run your business for optimal success.
Security
Bad Debt Protection can be thought of as a security blanket. Even if there are doubts about customers’ payment, you can have the confidence to expand and grow, knowing that your payments are protected.
It can be especially useful if there are doubts about the customer’s ability to pay in the long term.
Flexibility
In many cases, you can also choose select customers that need to be covered. This gives you more flexibility to target known risks and monitor them while being confident to take on new business.
Support
Your invoice discounting provider will work with you to help assess risks and minimise exposure to bad debt from both new and existing customers, another valuable benefit to ensure the success of your company.
Are There Disadvantages to Bad Debt Protection?
What exactly is covered will be determined by your provider. In some cases, you may find that Bad Debt Protection is limited to the customers that are most likely to pay, leaving some debts unprotected and you vulnerable.
In other instances, you may only be covered if your customer becomes bankrupt.
However, for many, the potential disadvantages are vastly outweighed by the benefits and protection provided.
Is Bad Debt Protection Right For Your Business?
The following reasons explore the kinds of companies that could benefit from Bad Debt Protection:
- Businesses in high-risk areas.
- Businesses that want to minimise risk.
- Businesses that have had previous experience with non-payments and bad debt.
- Businesses that want to protect their cash flow.
- Businesses that have a small number of customers that present a large percentage of sales and want to spread the risk.
- Businesses that want to expand with the extra level of protection.
It is now a great time for businesses to think about how they can further protect themselves if they haven’t done so already. With the ever-present uncertainty caused by COVID-19, thinking about how to preserve your cash flow and giving yourself room to expand is essential.
Managing other areas of risk is also important for all businesses. Implementing cost reduction strategies can be instrumental in freeing up funds and giving you the ability to direct resources elsewhere. Contact the Expense Reduction Analysts team to discover what we could do for your business.