The government announced yesterday that it will provide support to businesses with supply chains which rely on trade credit insurance and who are experiencing difficulties in maintaining cover due to the coronavirus crisis.
Trade credit insurers offer vital protection to companies against the risk that customers will not pay for goods. Without it, suppliers often demand payment for goods upfront, exacerbating the strain on company’s which are already suffering with cashflow issues.
The leading players in the trade credit insurance sector include Atradius, Coface and Euler Hermes. They play a crucial role in sectors such as manufacturing and retail.
With many businesses currently struggling to pay bills, they risk having credit insurance withdrawn, or premiums increasing to unaffordable levels.
To prevent this from happening, the government said it will temporarily guarantee business-to-business transactions currently supported by trade credit insurance, helping ensure the majority of insurance coverage will be maintained across the market. It is hoped that this will support supply chains and help businesses to trade with confidence as they will be protected if a customer defaults on payment.
The economic secretary to the Treasury, John Glen, said: “This country’s businesses are crucial in helping us to kick-start the economy as we get back to work, and I will do everything I can to help support them through this difficult time.
“By guaranteeing business-to-business transactions currently supported by trade credit insurance, we will help to maintain a vital cog in our economy.”
As of last month, more than £171bn of business activity was insured, covering transactions between around 13,000 suppliers and 650,000 buyers.
The Treasury said the guarantee, which will be delivered through a temporary reinsurance agreement with insurers currently operating in the market, would provisionally be in place until the end of the year.
Welcoming the move, Ian Wright, Chief Executive of the FDF said: “We are delighted that the government has introduced a guarantee scheme for trade credit insurance. It is news that will be warmly welcomed by food and drink manufacturers of all sizes, and an intervention we have been calling on the government to introduce since lockdown first began. We look forward to working with the Treasury on the details.”
NAM Implications:
- Risk of default thereby transferred to the taxpayer.
- Therefore, now that your personal money is involved…
- …perhaps worth calculating your company’s credit exposure by customer…
- …just to check the depth of the water?
- i.e. incremental sales required to replace lost profits should a customer go bust…
