Some simple actions around insurance and risk management can help free up cash for use in the business, says the broker

Insurance and risk management strategies can help UK firms improve liquidity, free up cash, strengthen their financial resilience and continue operating profitably during deteriorating economic conditions, says Marsh.

In a report Marsh explains how organisations can release working capital by reducing their insurance and risk costs, while managing changing risk factors such as supplier liquidity, customer default and increasing production and transportation overheads.

Martin South, chief executive officer of Marsh, said: ‘High prices for fuel, food and commodities are creating significant upward pricing pressures, while at the same time the global credit crunch is producing downward pressure on demand.’

‘There are some simple actions that can be taken around insurance and risk management. These can free up cash for use in the business. Insurance can also be used as an additional security to facilitate either greater borrowing or cheaper cost of borrowing, or as a solution to offset liability on the balance sheet.’

Marsh's recommended actions include:

Manage insurance costs to create additional working capital:

The cost of insurance should not be viewed as a written-off commodity spend but managed to create additional working capital. Marsh recommends firms review how much risk they retain and how much insurance they buy, taking account of the likely loss profile of the business and the appetite for retaining risk. Such a review may help to release working capital that would otherwise be tied up in insurance, whilst ensuring that proper protection is in place at times when margins may be squeezed.

Maximise the value of trade credit insurance:

Trade credit insurance can offer excellent value in times of economic uncertainty, providing protection against the growing risk of bad debts. This insurance provides companies with an additional security across their book of debts. By assigning the policy to a financial institution, accounts receivable become a more acceptable asset, securing either greater borrowing or a cheaper cost of borrowing.

Pay insurance premiums by instalments:

By spreading payment, businesses can typically free up cash for use elsewhere in their operations.