Credit Insurance: The Probuild ExampleTrade Credit Insurance can protect your business from bad debts by insuring receivables
MKP Group
Mar 17, 2022 · 1 min read

Continued pressure within commercial construction, has and will continue to see upward trends in administrations throughout the industry. The collapse of one of Australia’s largest construction companies Probuild highlights that counterparty risk is not always avoided even when contracting to large, reputable firms. Debtor defaults still exist, impacting many subcontractors throughout the supply chain.

Trade Credit Insurance can protect your business from bad debts by insuring receivables, safeguarding your hard-earned revenues, providing quick access to replacement capital should your clients default. Partner with MKP today.

Article from Our Partner in credit insurance:

Trade Credit Insurance- A Must Have for Subcontractors

Over the past few months, we have seen an uplift in insolvencies across the construction sector. Predictions suggest that this number will continue to increase throughout 2022 and has been highlighted by one of the Top 5 builders in Australia falling into Insolvency, Probuild Group of Companies, leaving over $300M in unsecured creditors.

Debtor defaults significantly impact subcontractors, causing instabilities and challenges to pay their own suppliers, creating a domino effect across the industry.

Price rises in materials and supply chain headaches are both proving to be extremely difficult challenges for builders. Couple this with wage pressures along with project delays and it continues to place pressure on margins, despite (in most cases) an oversupply of work.

Trade Credit Insurance is a risk mitigation product commonly used in the Building and Construction industry.

What is Trade Credit Insurance?

Trade Credit Insurance (also known as Debtors Insurance) protects businesses from bad debts.

It insures trade receivables, protecting businesses from unpaid invoices caused by customer insolvency and/or Protracted Default. For many businesses, its debtors’ portfolio can be its largest asset.

How does Trade Credit Insurance work?

Trade credit insurance works by insuring you against your buyer failing to pay, so every invoice with that customer is insurable for the insurance year. A typical policy includes an excess and indemnifies the policyholder for up to 90% of the debt.

Key benefits:

Swift access to replacement capital

In the event of insolvency of non-payment of a customer, credit insurance provides you with swift access to replacement capital, protecting your cash flow, before permanent damage is done to your business.

Protect hard earned profits

A $100,000 loss on 10% profit margin is $1,000,000 in lost sales! How would your business cope if one or two of your major customers fell over? Give yourself piece of mind knowing your debtor risk has been transferred to an A rated (or higher) insurer.

Increase sales to existing and new clients

A policy can provide you with support and confidence to extend larger credit limits, more favourable trading terms and alleviate buyer concentration risks, gaining a competitive advantage in the market.

Improve credit management

The normal channels of trade references and trading history bears less weight in assessing credit risk. In today’s environment it's not uncommon for a long-standing builder to fall into hardship from one poor project.

A credit insurance policy will provide you with far greater access to information than you would otherwise be able to obtain.

Strengthen balance sheet & governance

Reduce your dependency on bad debt provisions and underpin a key asset (receivables) by implementing debtor’s insurance into the business. Premiums are tax deductible and policy liabilities are normally much higher than the amounts provisioned. Safeguard your businesses financial position, providing certainty for the future.

For a free assessment of your current debtors and options on product cover and costs, feel free to discuss it with your MKP account manager.

MKP Group
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