How can credit insurance help?

The UK gas market has faced many challenging times since it opened up to competition in the mid 1990’s, but perhaps none with more far-reaching effects than it is currently experiencing. With many energy suppliers currently entering administration and with more likely to follow, the outlook for the next few months is ominous.

How did we get to this point? High Asian demand for gas, geopolitical issues and a cold Q2 have left European storage levels concerningly low. In addition, UK gas producers appear not to be forward selling their usual winter volume due to the potential of fields tripping, which might then leave them exposed to further short-term prices spikes.

Hedging gas demand for energy suppliers is always challenging, and this year many of the consequences have been unavoidable and severe. Although credit insurance can’t help with these matters, there is still a substantial amount of risk that can be mitigated:

Non-payment risk – The risk of debtor insolvency is an inherent part of owning a business. Your business may be better equipped to survive such losses by purchasing a trade credit insurance policy. Trade credit insurance provides your business with protection against the failure of your customers to pay their debts and substantial delays in receiving their payments.

One of your largest assets is your balance sheet and bad debt could have a significant effect on your company’s financial health. Credit insurance is a cost-effective way to alleviate this risk and provide some comfort as the economy recovers and companies are able to generate growth.

Mark to market – The risk of an energy seller going bust, could lead to high and disastrous alternative replacement costs for those who secured their energy supplies previously. Credit insurers may be able to insure 80-90% of this exposure, depending on the quality of the provider. Likewise, for any supplier who has locked in sales during this high price environment; should their buyer become insolvent, they will also face a big financial hit when a more bearish market returns.

Expand credit limits – High prices will be placing internal trading limits under severe strain and restrict sales opportunities. Credit markets are well positioned to enhance or replace current limits; however, it should be stressed that much of the available capacity is already being absorbed by the current markets conditions and it is advisable not to hang around.

At Arden, we can advise on the best way for you to protect your business, searching the market to find the perfect solution for you whether that is cover for one invoice, one client or all your credit sales.

For more information on any of the above issues, please contact Phil Boston at pboston@ardeninsurance.co.uk

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