Without engaging in effective financial risk management companies can find themselves in a lot of difficulty and, in some cases, they are rendered incapable of functioning. At present, a cautious approach to business is particularly important and figures produced by global information services firm Experian have highlighted this point.
The organisation suggested that while the business insolvency rate in the UK has dropped to the same level it was at in January 2011, there has been an increase in insolvencies amongst organisations with more than 500 employees.
It showed that the overall rate of failures fell from 0.11 in December last year to 0.07 per cent during the first month of 2012. However, the insolvency rate of firms with over 501 employees reached 0.2 per cent in January, which was up from 0.07 per cent the year before. This draws attention to the risks that companies face if they become complacent when they are extending credit to customers.
So, to help them avoid the problems associated with non-payment, businesses may be wise to make the most of the business credit management and insurance provisions now available. This can reduce the likelihood that they will experience such problems in the first place and, if they do, it can cover any financial losses.
There is no immediate sign that economic conditions in the UK and in many other countries around the world are set to improve dramatically, so caution may be required among firms for a long time to come. Indeed, as a general rule, enterprises can benefit from being prudent and diligent in their approach.