Firms face 'daily nightmare' of reduced credit insurance

26 April 2009

27 April 2009 | Martha McKenzie- Minifie

Credit insurance woes are hitting just a handful of buyers - but those affected are going through a "daily nightmare", according to the latest SM100 poll.

Only 6 per cent of purchasing professionals that responded to the survey said their organisation was curtailing relationships with suppliers because of the reduction of credit insurance in the downturn.

The remainder said their relationships with vendors were unaffected.

Trade credit insurance policies protect suppliers against the risk of customers failing to pay bills or of going bust.

In the Budget last week, the government unveiled a state guarantee scheme, capped at £5 billion, to underpin supply chain insurance and provide "breathing space" for businesses to adjust to changing circumstances.

Business groups - including the Forum for Private Business, Association of Chartered Certified Accountants, manufacturing group EEF and the Confederation of British Industry - have lobbied government since last year for measures to address the problem.

Business Secretary Lord Mandelson emphasised his concern in January about the "immense financial distress" being placed on companies by the loss of the cover.

SM100 respondents for whom the reduced availability of credit insurance was a problem were reluctant to be named because of the sensitivity of the issue.

One respondent told SM that a business in a high-risk sector faced a "daily nightmare" with credit insurance despite having a good track record. The source said they had ended some supplier relationships by default as certain vendors no longer wanted them as a customer.

One buyer for a medium-sized business said: "We are having to work mainly on trust - luckily we have long-standing relationships with many of our suppliers."

In a Forum for Private Business quarterly survey in February, 17 per cent of its members said credit insurance was a major issue that needed to be addressed to support their organisation.

And the value of trade supply chain insurance claims rose by more than a third last year, according to figures released by the Association of British Insurers (ABI) last week.

The ABI said credit insurance claims reached a total of £360 million in 2008, up from £257 million the year before, an increase of 40 per cent.

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