By Kirk Cheesman, originally published in part, in National Credit Insurance (NCI) News
Given the high number of recent insolvencies, I researched the top reasons why businesses fail. What I found most concerning was that many of the top reasons were not visible to suppliers or financiers.
The top five reasons why businesses fail had a common theme:
• Poor capital structure / financing arrangements
• Over expansion (too quickly and by poor acquisitions)
• Bad / dysfunctional management
• Failure to react quickly to market conditions
• Poor internal control / business model
When assessing credit or a client's ability to pay, businesses tend to focus on visible information such as mercantile reports, past trading experience, adverse information checks and contracts on hand.
The top reasons above suggest, in current conditions, that an in-depth assessment based on business models and management structures should be taken into consideration - this kind of detail is only assessed with more due diligence. An ICBA trade credit insurance broker can help a business assess credit correctly.
Talk to an ICBA broker about accounts receivable insurance and how trade credit insurance and political risk insurance may help save your business - or at least let you sleep at night, knowing your business is doing more to ensure ongoing prosperity.
(Kirk Cheesman is Managing Director of ICBA Australia and New Zealand, National Credit Insurance (Brokers) Pty Ltd and a Director of NCI Brokers (Asia) Pte Ltd.)