Plans for a new Trade Credit Insurance guarantee scheme were published by HM Treasury yesterday (13 May).
In the face of widespread concerns about credit insurance being withdrawn or premiums rocketing, the government said it would temporarily guarantee business-to business transactions that are currently supported by trade credit insurance “ensuring the majority of insurance coverage will be maintained across the market”.
The guarantee will involve a temporary reinsurance agreement with insurers currently operating in the market. It will cover domestic trading in the UK and by exporting firms.
Further details, along with the required agreements with insurers, are expected to be in place by the end of the month.
Announcing the move, 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.”
CBI chief economist Rain Newton-Smith, commented: “The government’s decision to backstop trade credit insurance will protect thousands of jobs and allow many businesses across the UK to restart operations.
“This intervention will keep cash flowing within critical supply chains and more importantly, it will help lower risk for our exporters and ensure that UK firms can continue to trade with other countries.”
Over recent weeks print bosses and suppliers to the trade have told Printweek that they are experiencing drastic changes in trade credit coverage.
“One of our smaller customers has had all of their cover withdrawn, while another that blue-chip name that previously had a huge rating has had that slashed to a fraction of what it was,” an industry CEO commented.
Nick Gee, managing director at merchant Denmaur Paper Media, said: “It is true that credit insurers have adjusted and cancelled limits dependent on the sector and their view on how that industry sector will come through, for example holiday companies have had limits withdrawn totally.
“Any such scheme is welcomed, however it is thin on detail at the moment. What criteria will the government impose on the insurers to make sure they aren’t just writing reckless limits on customers will be interesting to see.”
He added: “If it helps keep the cost of credit insurance under control and affordable that is a welcome relief going forward. It will certainly offer confidence in supplying.”
While the scheme was broadly welcomed pending further details, there were concerns that it could potentially encourage some firms to slow down payments further, or even stop paying altogether.
“As we are in a trade that credit gets stretched as much as possible this will be an opportunity for some to try and get a bit more time, but it is then up to the supplier to be a bit more hardball and put these people on stop to protect their business,” said Rob Hart, director at Ace Binding Co.
Hart added that, overall, the new scheme sounded like it would be a good thing.