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Protecting your income will be key as support ends…
With Australia’s economy rebounding and confidence rising, it’s easy to overlook the fact that many businesses are still struggling with repercussions from the COVID-19 restrictions and lockdowns.
Following a tough year, the Reserve Bank of Australia has declared the economic recovery is well underway and stronger than expected. The unemployment rate has declined and Commonwealth Bank Chief Executive Matt Comyn has even spoken of “miraculous” improvements. But the momentum has been fuelled by billions of dollars in state and federal government spending and concerns remain that some parts of the economy may begin to wobble as programs fall away or wind back.
The $90 billion JobKeeper wage subsidy scheme, a critical support measure accessed by many firms to keep staff employed and their businesses ticking over, expired at the end of March. Some temporary insolvency relief measures have also come to an end. The reduction in assistance has increased the risk that firms previously able to meet financial commitments may no longer be able to do so, and there could be cascading effects on the enterprises with which they engage.
Some analysts say government measures may have kept alive “zombie” firms that otherwise would have ceased trading, and there may in coming months be a surge in companies unable to pay their debts. This is where trade credit insurance comes into play. The cover ensures a business can protect itself against the risk of invoices not being paid by those customers facing challenging circumstances and unable to meet obligations.
While often discussed in the global context or for the top end of town, there are a number of trade credit policies designed for smaller firms that include a range of features to mitigate the risk of loss.
Some may provide protection in export or imports contexts, while others deal with local trading. They may require a firm to specify particular debtors, or provide a more general cover. Policies may be triggered by insolvency or a certain period of non-payment.
As with any insurance, it’s important for businesses to undertake steps in the first instance to, as much as possible, reduce the risks. But taking out a trade credit policy can provide an extra element of protection and much-needed peace of mind.
The road to recovery is looking positive, but it’s likely potholes still lie ahead. When it comes to navigating the way forward, we can provide invaluable advice on specialist areas such as trade credit cover.