29 July 2024

In an era marked by rapid technological advancements and geopolitical shifts, businesses worldwide are grappling with complex supply chain challenges. From the aftermath of the COVID-19 pandemic and political instability to natural disasters and cyber threats, the fragility of global supply chains is more apparent than ever. Trade credit insurance (TCI) continues to play a critical role in helping businesses continue in these times of uncertainty.

Supply chain resilience – what is it and why is this important?

Supply chain resilience refers to a business's ability to anticipate, prepare for, and respond to disruptive events while maintaining continuity and minimising the impact on operations. In today's interconnected world, where supply chains span multiple countries and continents, resilience is more important than ever. Recent events like the COVID-19 pandemic, geopolitical tensions, and natural disasters have highlighted the vulnerabilities within supply chains and emphasised the need for robust risk management strategies.

The role of TCI

TCI is a financial product that protects businesses against the risk of non-payment by their debtors. By providing this cover, TCI ensures that companies can maintain cash flow even when their customers fail to pay. In recent times, we have seen how TCI enhances supply chain resilience:

  • Risk Mitigation: TCI mitigates financial risks by covering potential losses due to customer insolvency or payment defaults. This protection allows businesses to extend credit to new and existing customers with confidence, knowing they are shielded from significant financial setbacks.
  • Trust and Stability: In a global marketplace, trust is essential for maintaining stable business relationships. TCI fosters trust by providing a safety net for both suppliers and buyers, ensuring that transactions can proceed smoothly even in uncertain times. This stability is crucial for sustaining long-term partnerships and preventing supply chain disruptions.
  • Cash Flow Protection: Cash flow is the lifeblood of any business. TCI protects cash flow by ensuring that companies receive payment for their goods and services, even if a buyer defaults. This protection is particularly important during economic downturns or periods of market volatility, where the risk of non-payment increases.

Case Study

To illustrate the impact of TCI on supply chain resilience, let us consider the case of a mid-sized manufacturing company. This company faced a significant disruption when one of their largest customers in a foreign market went into insolvency. Thanks to TCI and the cover that had been facilitated by us, the manufacturer was able to recover 90% of the debt owed them, along with recovering their raw material and labour costs incurred for those orders that were awaiting delivery. The swift payment of this claim enabled the business to maintain their cash flow and continue operations without having to delay supplier payments. This example shows the value of TCI in dealing with supply chain challenges and maintaining business continuity and highlights the importance of having additional cover in place, such as the ‘work in progress’ cover, to maximise the benefits of the policy.

The future of supply chain management and the role of TCI

As technology continues to advance, the role of TCI in supply chain management is evolving. Innovations such as artificial intelligence (AI) are enhancing the capabilities of TCI providers, enabling more accurate risk assessments and streamlined claims processes. AI-driven analytics can predict potential risks and defaults with greater precision and there are insurers in the market that are introducing fully automated API-linked policies.