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With Bad Debts Rising, SMEs Advised To Protect Their Business

With Bad Debts Rising, SMEs Advised To Protect Their Business

Bad debt levels appear to be on the rise, leading many SME’s to investigate ways to protect themselves from the devastating flow-on effect of such write-offs.

Insolvencies add to the bad debt pool in a significant way - there are about 11,000 insolvencies each year in our region, including recent high profile major insolvencies such as One Steel and Dick Smith (Australia and New Zealand) and My Baby Warehouse, Allied Traffic Services, SX Projects and Stonewood Homes (New Zealand).

The old adage “no customer is too big to fail” continues to ring true, and there are obvious dangers when SMEs overexpose themselves to a few large customers.

In response to the increase in bad debt levels, Scottish Pacific has launched a bad debt protection (BDP) product that is offered alongside its debtor finance facilities to assist clients in protecting themselves against possible bad debts.

There are three good reasons for SMEs to take out bad debt protection:

Preserve profit
Too often businesses only realise too late that a bad debt is really lost profit.

With a 5 percent profit margin, a $50,000 failure has wasted $1,000,000 of sales. A bad debt reserve is not the answer as this won’t put cash back into the business.

Prevent business failure
Many SMEs are overexposed to a few large customers – if one fails, it could potentially topple a chain of small to medium businesses.

We have seen this time and time again over the years. Bad Debt Protection can save a business from financial ruin.

Strengthen credit management
Many – perhaps even most – SME owners don’t make time in their busy schedule to conduct a credit review of their largest customers.

I’d ask SMEs, have you recently looked at your larger customer’s balance sheet or undertaken regular credit checks and assessments? Business are fluid and their financial position changes every month. 

A customer may be in a very strong financial position when you first start trading with them but conversely that business may be in a far more vulnerable position inside 6 months due to a whole range of reasons. It’s sensible to put in place a regular monitoring and credit assessment program for your larger customers.

Through our Bad Debt Protection offering, clients benefit from our significant data base and partners to assess the credit worthiness of their customers and set firm cover on the larger customers of the business based on sound analysis and information.

This gives clients the ability to select customers to obtain protection on, reducing the overall cost and providing clients with advance warning of adverse debtor information.

Scottish Pacific’s Bad Debt Protection has paid out hundreds of thousands of dollars of claims to clients as well as warning clients of higher risks in extending credit to certain customers due to adverse credit information on those customers. Now that’s adding value.

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