Is any business ‘too big to fail’?

Dick-Smith_shop2016 started with a ‘bang’ with the insolvency of Dick Smith Electronics.

Listed on the Australian Stock Exchange only two years ago, the demise of a so-called blue chip business confirms that major companies are open to failure due to underlying invisible factors that

may be brewing behind the scenes.

From a trade credit perspective, Dick Smith’s failure is big news.  Trade credit insurance provides sellers with the protection needed to safeguard themselves against a customer default due to financial or political events.

National Credit Insurance (NCI) have reported that some suppliers felt there was no need to credit insure Dick Smith, and in fact, mutually excluded this company from their trade credit insurance policies. It highlights that any company can become insolvent, even when they regularly pay on time and when they seem ‘too big to fail’.

Even with some late warning signs, it was hoped Dick Smith would recover after the Christmas period, gain banking support, and survive. For such a high profile retail business, support leading up to the Christmas period was needed from suppliers who in turn, received support from their trade credit insurers.

With the receivers and voluntary administrators now in place, recovery efforts of stock under retention of title via PPSA registrations will be critical to reducing potential exposures.

With the start of a fresh year, it is a good opportunity for businesses to reassess their credit risks to ensure their customers have the financial backing and the ability to survive tough conditions.

Solutions range from policies that insure all or part of a seller’s account receivables book, selected large or high hazard debtors, or individual debts which exceed a pre-agreed threshold.

 

 

Published on Sunday, March 13th, 2016, under Latest News