The Rising Pressure on Price and Profitability
The global trade environment remains in flux, creating unique challenges for small to medium-sized businesses (SMBs). With tariffs and shifting trade policies increasing costs along supply chains, businesses are finding it harder to maintain stable profit margins and revenue certainty.
When costs rise due to higher supplier and manufacturer pricing, SMBs often face a difficult choice—absorb the increased costs and risk lower profitability or pass them on to customers. But consumer behavior is unpredictable. Many will simply switch to alternative providers offering lower prices.
For SMBs, the loss of a single key customer can significantly impact their ability to sustain operations, invest in growth, and weather financial setbacks. Shrinking margins mean less flexibility to cover debts, maintain inventory, and reinvest in critical business improvements.
The True Cost of a $250,000 Credit Loss
Consider a company generating $10 million in annual revenue with a 5% profit margin. That equates to $500,000 in profit—the amount available to absorb financial setbacks.
Now, imagine that business experiences a $250,000 credit loss due to unpaid invoices. This loss immediately wipes out half of its annual profit. To recover, the company would need to generate $5 million in new sales, assuming the same 5% profit margin, just to offset the loss.
For most SMBs, achieving an additional 50% growth in revenue in response to a single financial hit is a daunting—if not impossible—task. This type of setback can quickly destabilize a business, forcing cutbacks, operational restructuring, or even closure.
Mitigating Risk with Accounts Receivables Insurance
While trade uncertainty and pricing pressures are difficult to control, accounts receivables insurance offers SMBs a critical tool to protect their cash flow and financial stability. This coverage ensures businesses can recover outstanding debts and maintain liquidity even when a key customer defaults.
Historically, large corporations dominated the use of receivables insurance, but today, SMBs can access single and multi-buyer policies designed to fit their needs. Having this financial safety net can make the difference between survival and insolvency after a significant customer default.
Taking Action
If you’re an SMB navigating today’s trade environment, now is the time to explore risk mitigation strategies. Talk to a trade credit expert about accounts receivables insurance. If you don’t know one, we can refer you, just contact info@finsurancegroup.com. It could be the most important step you take to protect your business, your profits, and the livelihoods of your employees.