Customer Non-Payment – a Business Interruption Insurance Threat to Small Businesses
For most people, business interruption is a shutdown caused by natural events (so-called “acts of God” such as floods, storms, etc.) or man-made events (including terrorist attacks, transportation strikes, fires, etc.).
However, there is another threat that can seriously affect a business: non-payment or late payment by a customer! For thousands of small businesses, a single client may account for as much as three-quarters of their turnover. Having a single large customer is not a bad thing, and many firms are profitable because of such customers. However, with this kind of dependency, should a customer default in payment, the effects could be devastating to the business. In effect, the firm faces the threat of shutting down solely due to the collapse of its major customer, something over which the business has no control.
Many small businesses, especially sole traders, could be in big trouble if their customers become insolvent. Yet, rather surprisingly, the vast majority of these businesses don’t seem to view this as a genuine risk. Adequate coverage to protect against a customer’s payment default is necessary to mitigate the possible effects of bad debt on the business. Failure to have insurance cover for customer payment default could impact the company’s staff, other customers, and their customers’ businesses – a sort of domino effect that could spread misery all around. The risk is exacerbated if the customer is an international trader or an overseas customer who might be affected by unforeseen events, including war, political events, natural disasters, etc.
As always it is better to be safe than sorry. A small business insurance policy that provides cover for non-payment by a customer would go a long way to ensure that the business survives such an eventuality.
