Less than 25% of Canadian businesses have trade credit insurance, said Intact Insurance’s vice-president of trade credit Jay Rampersad in a recent Canadian Underwriter article. Trade credit insurance protects a business’s receivables against buyer default and bankruptcies, and Rampersand expects to see a lot more demand for it in the near future.
The reason for what is expected to be an increase in the uptake of trade credit insurance is the Bank of Canada’s incremental raising of interest rates as an attempt to fight inflation in the country. The rate currently sits at 3.5% and indications are that there will be another hike before the end of the year. There are very real and valid fears that Canada will fall into a recession in early 2023. According to a June 2022 survey conducted by Yahoo Canada/Maru Public Opinion and referenced by the Canadian Underwriter, “68% of Canadians expect an economic downturn based on 40-year high inflation rates, labour shortages, and recent interest-rate hikes.”
An economic downturn means some businesses may not be able to pay their bills
Businesses are very good at insuring against the usual instances. Commercial property insurance covers for damages incurred from events such as fire, burst water pipes, and extreme weather incidents. Commercial auto insurance protects business vehicles, their drivers, and tools and equipment stored in those vehicles. Commercial surety bonds insure against financial losses resulting from a party failing to complete contractual obligations and the ensuing disruption to your business. Fidelity coverage covers cash, valuables, equipment, securities and other negotiables that might be stolen or misappropriated by unscrupulous employees.
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 which specific accounts receivable they want to cover, however underwriters would advise covering them all.
There is one caveat to trade credit insurance, however. Since it covers for lack of payment when a buyer goes bankrupt, businesses may feel free to take greater risks when choosing client or when filling orders. If too many claims are filed for a specific type of policy there is the danger it will become cost-prohibitive. Underwriters are aware of this and are working to weed out low- and high-risk businesses when designing their policies.
Ways to collect on non-payments without filing a claim
Non-payment of bills can make or break a small business, which is why it’s very important to have an agreed-upon payment process in place before any transaction. If payments are late regardless of your agreement, there are a few steps you can take to help get the bill paid.
- Send a gentle reminder. A late payment is often an honest mistake. Start gently by asking if your service was satisfactory, then speak about the late payments and/or invoices due.
- Send an updated invoice with late fees (if applicable). This eliminates any argument that the initial invoice was not received.
- Attempt to resolve the situation personally. Sometimes just sitting down and talking with a client is all it takes.
- Escalate with a reaction. Pen a firmly worded letter describing what will happen if payment is not received by a certain date, and then carry through on that action (whether it be the termination of a contract, reference to a debt collection service, a request to appear in small claims court, and so on).
Trust Lane’s for all of Your Small Business Insurance Needs
The experienced and knowledgeable insurance brokers of Lane’s can help explain all of the ins and outs of the many different types of business insurance coverage. You’ve worked hard to grow your business through difficult times and you need to protect that investment with the right insurance policies. Contact us at our Calgary, Edmonton, Banff, and Alberta offices today.
