A recent Canadian Underwriter article has pointed to the increase of corporate insolvencies year-over-year in Canada. It’s concerning news, but know that experienced business insurance brokers such as us at Lane’s have the knowledge and ability to step in to assist clients with cash flow management and risk mitigation solutions.
According to Marsh’s Political Risk Report for 2024, instances of insolvencies, characterized by a business’s failure to fulfill its financial obligations, grew by over 20% in Canada between 2019 and 2024. In the fourth quarter of 2023 alone, insolvencies escalated by a staggering 35%.
Insolvencies are often caused by customers not paying for services provided. You can protect yourself with trade credit insurance.
What is insolvency?
According to Investopedia, “Insolvency is when an individual or company can no longer meet their financial obligations to lenders as debts become due. Before an insolvent company or person gets involved in insolvency proceedings, they may be involved in informal arrangements with creditors, such as setting up alternative payment arrangements. Insolvency can arise from poor cash management, a reduction in cash inflow, or an increase in expenses.”
Companies have begun their repayment of government-issued pandemic loans, and numerous businesses are still unable to regain their financial stability post-pandemic. This challenge is compounded by rising operating expenses, placing businesses in a precarious position. Government support has stopped and businesses are still required to pay their bills, leaving them increasingly vulnerable to insolvency.
What is bankruptcy?
Insolvency refers to a financial condition where an individual is unable to fulfill their debt obligations within the specified time frame due to insufficient funds. Bankruptcy, on the other hand, is a legal procedure initiated when an individual declares their incapacity to repay debts owed to creditors.
Declaring bankruptcy as a business entails a number of risks, including damage to your reputation, loss of assets, and potential legal repercussions. It can lead to diminished access to credit, strained relationships with suppliers and clients, and challenges in securing future funding or partnerships. This can all impact any future business you may want to develop.
A business owner is much better off trying to work through their insolvency issues than declaring bankruptcy. Bankruptcy could stop you from being a business owner forever.
How trade credit insurance can help
Trade credit insurance products are designed to moderate the risks of non-payment from a client or buyer and provides specialty coverage wherever businesses exist in the supply chain. Coverage pays out losses to businesses that don’t receive payments from their buyers. Businesses can choose the specific accounts receivable they want to cover, however underwriters advise covering them all.
How to recover outstanding payments without resorting to legal action
If your business it at risk due to unpaid bills, there are steps you can take to try to recoup your money without having to contact an overpriced lawyer.
Unsettled bills pose a significant challenge for small businesses, which is why it is necessary to establish a clear payment protocol before engaging in any transaction. In cases where payments are delayed despite prior agreements, there are several proactive steps to facilitate prompt payment:
- Start with a gentle reminder. Tardy payments can often result from oversight, so it’s generous to begin with a simple courteous inquiry asking whether your customer is satisfied with your services. Then inquire about outstanding payments or invoices.
- Provide a warning, and a deadline. If it simply a mistake and the customer is normally reliable, you may consider being kind and reversing late fees.
- If there is no reply or explanation, issue a revised invoice incorporating late fees (if applicable). This serves to nullify any disputes regarding the receipt of the initial invoice and reminds your customer that late payments can cause a ripple effect.
- Try contacting the representative directly for a resolution. In some instances, resolving the matter can be as simple as engaging in a constructive dialogue with the client, which fosters mutual understanding and co-operation.
- If the situation persists, adopt a more assertive approach by drafting a sternly worded letter outlining the consequences of continued non-payment by a specified deadline.
- Follow through with the stated action, whether it entails contract termination, referral to a debt collection service, or initiation of legal proceedings in small-claims court.
Lane’s is your trusted partner for smart business insurance solutions
Lane’s insurance brokers possess the expertise and insight to guide you through the complexities of various business insurance options. Safeguarding your hard-earned business assets demands the right insurance coverage tailored to your unique needs. Reach out to our offices in Calgary, Edmonton, and Banff, and serving the rest of Alberta, today to secure comprehensive protection for your business.
