Australia's hospitality and liquor distribution sectors are navigating a complex credit risk environment, marked by both recovery and ongoing challenges. Latest ASIC insolvency data shows that during FY24 there were 1,668 Accommodation and Food Services businesses that entered External Administration, up from 1,114 in FY23.
This rise is concerning, but during the FY24 period, NCI clients that had Trade Credit Insurance (TCI) in place to protect themselves from this type of event received $75 million back across more than 1,400 claim payments. A number of these businesses would have been supplying into the food and hospitality industries.
TCI is used exclusively across industries where there is a heightened risk of non-payment, those such as liquor, export, building and construction, and labour hire for example. The process of obtaining TCI is easy, especially when using a specialist broker like NCI, with only a small amount of information needed to get quotes. However, there are occasionally some preconceived ideas about TCI which act as a barrier when seeking out information.
Here are some NCI MythBusters:
- TCI is too expensive. Wrong. TCI is a very small percentage of your overall turnover and many businesses factor this into their pricing model. Additionally, TCI often builds revenue as it allows businesses to acquire new customers they would not normally trade with.
- Insurers only insure good risks. Incorrect. Average approval rates range from 85-95% on risks requested. If credit limits aren’t approved, it is because generally the business that the cover is sought on is in a financially poor position.
- Claims are not paid. False. 90% of claims processed via NCI with insurers are paid, 5% are part paid and 5% are not paid due to non-compliance.
- There is too much administration to manage a policy. Untrue. A specialist broker such as NCI has a portal with direct links to insurer systems, making it easy and efficient to manage policies.
It’s clear that there are currently external factors that are often out of the control of businesses supplying into the Hospitality sector. On one front, consumers, feeling the pinch of rising living costs, are cutting back on discretionary spending, leading to reduced sales and revenue for hospitality establishments. On the other front, these businesses are facing a dramatic increase in operating expenses with the cost of ingredients, utilities, wages, and rent all soaring. This dual pressure is squeezing already narrow profit margins, leaving many businesses in a precarious financial position.
Proactive businesses supplying into these industries can still exercise some control particularly over their ability to be paid up to 90% of all outstanding debts via a Trade Credit Insurance policy. The myths have been busted above! These make clear that TCI isn’t expensive, insurers approve most credit limit requests, claims are paid and policy administration can be made easy with a bespoke portal like NCILink.
To take control of getting paid, contact NCI today. Visit www.nci.com.au or email info@nci.com.au
NCI Trade Credit Solutions is a Silver Partner of the Drinks Association.