South African businesses are operating in an increasingly unforgiving economic environment, where continuous global shocks and domestic constraints combine to create unprecedented pressure on corporate governance, operational stability and cash flow.
As economic conditions tighten, the risk of delayed payment and default of debtors escalates – not only because companies are struggling, but also because financial strain can give rise to operational misconduct that leaves suppliers exposed. In this context, trade credit insurance is rapidly becoming one of the most critical tools for business to incorporate onto their debtor management and overall risk management.
“Trade credit insurance protects businesses against non-payment when selling goods or services on credit. If a customer defaults – whether due to business rescue, liquidation or prolonged non-payment – the insurer steps in to cover the loss, allowing the supplier to maintain their cash flow and continue trading with their other customers,” explains Heleen Botha, COO of Hollard Trade Credit.
Long-term tightening economic pressure exposes bigger risks
South African companies are feeling the strain of rising input costs, volatile fuel prices and persistent interest rate pressure. Even small movements in interest rates can push already‑stretched businesses into distress.
“A company that is already battling cash flow constraints can be tipped over the edge by a 0.25% or 0.5% rate increase. Many businesses are operating at the limits of their overdraft facilities, and any additional pressure can trigger defaults,” Botha notes.
Global disruptions are compounding the challenge, with supply chain delays, shipping bottlenecks and geopolitical tensions driving up the cost of imported goods, often dramatically.
One example is a recent shipment of raw materials that landed at three times its usual cost due to international conflict and shipping delays. “Businesses simply cannot absorb increases of that magnitude. If they have fixed price contracts, they face immediate losses; if they pass the cost on, inflation rises. Either way, the pressure is immense,” says Botha.
The hidden threat behind many defaults
While economic strain is the primary driver of business failure, it also exposes (and sometimes encourages) poor governance and operational misconduct.
“We’re seeing more cases where historic lifestyle choices or governance failures contribute to a company’s collapse. When times were good, some owners had the ability to draw excessive dividends or funded personal expenses through the business. Now that conditions are tough, those practices are being exposed,” says Botha.
In several recent cases, businesses suddenly filed for business rescue. Investigations revealed numerous reasons, whether inflated financial statements, excessive loans, and even unrealistic forecast where working capital was then used for capital investment.
“It’s not always deliberate fraud. Sometimes it’s poor judgement or a failure to tighten governance as the business grows. But the result is the same: suppliers are left unpaid, and insurers can then step in to assist our policyholders,” Botha adds.
Why trade credit insurance is now key
Trade credit insurance is designed to protect suppliers from precisely these unforeseen events, whether caused by economic conditions, operational misconduct, or unforeseen events such as the sudden death of a sole business owner. It ensures that companies can continue trading and manage their own cash flow even when one of their customers fail.
“But its value extends beyond claims payments. Trade credit insurance gives businesses another set of eyes on their debtors. We continuously monitor companies across the market. If we pick up early warning signs, from other policies or industry sources, we have the ability to alert our policyholders so they can take action before a small problem becomes a major loss,” says Botha.
This proactive oversight is especially important in a market where distress can spread quickly.
What businesses need to know:
Botha emphasises that trade credit insurance works best when implemented early, not when trouble has already begun. “If you wait until your customers are under strain, premiums will be higher, and cover may be harder to secure, in some instance, cover won’t be available at all. When a policyholder debtors’ book, is new, or stable, with good established clients, your portfolio is assessed as a lower risk, and your premium reflects that.”
She also stresses the importance of strong internal risk management:
• Visit customers and verify their operations
• Documentation is critical. Keep delivery notes, invoices and proof of delivery meticulously filed
• Conduct regular sanctions and registration checks
• Monitor payment behaviour closely
“Trade credit insurance is there for catastrophic losses, but businesses must still maintain good housekeeping. If a customer consistently pays 60 days late, that’s a warning sign you cannot ignore,” Botha says.
A leading trade credit insurance solution is offered through a partnership between Hollard and iTOO Special Risks, combining deep underwriting expertise with market leading risk insights to support South African businesses in an increasingly volatile environment.