The unexpected and unpredictable demise of a key customer can have critical consequences for a business. Not only does it seriously affect cash flow, but in the worst cases, can lead to a company’s ultimate collapse. One way of guarding against this eventuality is credit insurance and, for one manufacturer – Evans Timber Ltd – the decision to be credit insured proved to be the right one.
East Yorkshire-based Evans Timber resulted from a management buyout in 1993 led by managing director Syd Carr. Mr Carr had been with the business since it started and, as a major manufacturer of timber scaffolding boards, had always recognised the need for adequate protection against customers’ insolvency and bad debt.
‘Credit insurance is vital to a business such as ours,’ he explains. ‘In the timber trade, and especially those dealing with larger volumes of material, credit insurance is considered a prerequisite – the sensible business decision. It protects your business against bad debt in the event that a disaster should occur.’ For Evans Timber, the disaster was in the form of BB&EA, part of Montpelier plc. Until that time, Evans Timber had never had a significant bad debt. ‘We were comfortable dealing with BB&EA because they in turn were part of a major, credible plc,’ says Mr Carr. ‘They had become a key customer over an 18-month period and we extended them credit accordingly. We didn’t conceive that Montpelier would put one of its businesses into receivership in such a dramatic fashion, and with such dramatic repercussions throughout the industry.’ Informed by the receivers of the collapse, Mr Carr immediately notified EULER Trade Indemnity that its material would not be paid for. The choice of EULER Trade Indemnity, the global leader in its field, similarly proved to be a sound business decision. ‘Because we had kept EULER Trade Indemnity informed at all stages, when BB&EA went into receivership, our credit insurer dealt with our claim very quickly, efficiently and professionally.
‘The speed with which it handled our claim was obviously very important in maintaining our cash flow.’ The example of BB&EA is a salutary tale, and one that clearly illustrates the fundamental purpose of credit insurance in protecting a business in the event of a major collapse. But prior to BB&EA’s collapse, Mr Carr had also been using the services provided by EULER Trade Indemnity in other ways to benefit his business.
‘One of the services we use is First Source,’ he says, ‘and this has proved an extremely useful tool. It allows us to check the financial credibility of a potential customer before doing business, and how much credit we could/should extend. You can of course always over-trade if you wish, but you always know what your limits are.’ Furthermore, the simple fact that Evans Timber is credit insured is also perceived as a business advantage. ‘Many of our suppliers are also credit insured with EULER Trade Indemnity, and this helps build greater trust and a stronger working relationship.
‘Credit insurance is also seen as being a sensible business decision to those in the financial world,’ he adds. ‘Financial institutions take a much healthier view of your business if you are seen to be taking precautions to mitigate risk.’
