Recent corporate defaults, including those of Ola Electric, SpiceJet, and Zomato, have highlighted the financial risks businesses face when extending credit. Unpaid dues and insolvency petitions can disrupt operations and create cash flow crises. To protect against such uncertainties, companies must adopt robust financial safeguards like trade credit insurance.
The recent revelation by our finance minister that Indian banks have written off non-performing assets (NPAS) worth Rs 16.35 lakh crore in the last 10 financial years highlights the urgent need for businesses to protect themselves from payment defaults. With Rs 1,70,270 crore in bad loans written off in 2023-24 alone, companies must take proactive steps to secure their cash flow and reduce financial risks.
One essential tool for this is trade credit insurance, which helps businesses recover losses if customers fail to pay their dues. This is especially important as several well-known companies, such as Ola Electric, SpiceJet, and Zomato, have recently faced insolvency petitions. These cases show how even large companies can struggle with financial stability, impacting their suppliers and partners.
Recent Examples of Financial Struggles
Ola Electric: The electric vehicle company has been under scrutiny due to financial instability and has faced an insolvency petition filed by supplier BTL EPC Ltd over unpaid dues. While the company has disputed the claim, such situations highlight the risks suppliers face when extending credit without adequate protection.
SpiceJet: The airline has been grappling with financial distress for years. It recently faced an insolvency petition filed by an Ireland–based aircraft lessor due to non-payment of dues. Such legal battles not only impact the airline but also affect its vendors, leasing partners, and service providers, many of whom operate on credit.
Zomato: The food delivery giant was hit with an insolvency petition over unpaid dues to its creditor, Nona Lifestyle. While the case was eventually withdrawn, the creditor has requested the restoration of the case. It serves as a reminder that even financially strong companies can run into cash flow challenges, potentially leaving suppliers unpaid for extended periods.
These cases demonstrate how businesses of all sizes can face unexpected financial troubles, making trade credit insurance crucial for those dealing with large receivables.
Why Trade Credit Insurance Matters?
Protects Against Payment Defaults: Businesses often sell goods and services on credit. If a customer cannot pay, trade credit insurance helps recover the loss, preventing financial strain.
Ensures Business Stability: Unpaid invoices can disrupt cash flow, making it difficult for businesses to pay suppliers, employees, and other obligations. Trade credit insurance ensures financial continuity by covering losses from defaults.
Encourages Growth and Expansion: With insurance coverage, businesses can safely offer credit to new customers, helping them expand without worrying about unpaid invoices.
Strengthens Supplier Relationships:When businesses are protected from bad debts, they can maintain steady transactions with suppliers, ensuring a more stable and trustworthy supply chain.
Improves Access to Loans: Banks and lenders are more likely to approve loans for businesses with trade credit insurance since it lowers financial risks
Strengthening Business Defences Against Defaults.
As of December 31, 2024, Indian banks had 29 major borrowers classified as NPAS, each owing Rs 1,000 crore or more, totalling Rs 61,027 crore. The recent financial troubles of Ola Electric, SpiceJet, and Zomato highlight how unpredictable the business environment can be. If companies are unprepared, they may struggle to recover losses from unpaid invoices, affecting their operations and long-term survival.
Globally, trade credit insurance covered about 15% of trade transactions in 2023, worth €8.5 trillion. However, Indian businesses have been slow to adopt it. Given rising economic uncertainties, it is now more important than ever for businesses to safeguard their financial health.
While banks continue legal efforts to recover unpaid loans, businesses must also take steps to protect themselves. Trade credit insurance ensures stability by covering losses from non-payment and helps companies operate with confidence. In today’s uncertain market, protecting receivables is not just a smart decision—it is a necessity.
