Half of large UK retailers and over 40% of small and medium sized firms have warned that the reduction or withdrawal of trade credit insurance has undermined their ability to trade, according to new figures out today (17 April).

Trade credit insurance protects suppliers who sell goods to companies, such as retailers, on credit against the risk that they will not get paid. 

When credit insurance is withdrawn, suppliers will often demand payment in advance.

This can leave retailers short of stock, create cash flow problems and even cost jobs as retailers divert funds from wages to paying suppliers, industry body the British Retail Consortium has warned.

“For retailers to survive and keep people in work they need to keep shelves stocked with the goods customers want. In these uncertain times, it’s even more important suppliers have the confidence that trade credit insurance brings. Cover must remain available,” Stephen Robertson BRC director general, said.

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According to the BRC’s Credit Conditions Survey, the majority of UK retailers also believe that credit insurers “are not in a position to assess accurately the risk of a supplier not getting paid”.

Chris Baker, director of insurance broker Credit Insurance Alliance, concurred that insurance companies are facing difficulties in assessing risk levels.

“The insurance market is very difficult in the current climate because most insurers are desperate for more information on retailers’ financial stability… There have been quite a few big hits that the market has taken, [for example] Woolworths plc… It is the industry’s view that the problems in the retail sector are far from over,” Baker told just-food.

According to Baker, the only way for insurers to better gauge the risk levels presented by retailers is for the companies in question to open their books to risk assessors.

“Retailers… do need to provide as much financial information as possible and future business plans are vital…. It is really about keeping the insurance market up-to-date to ensure an appropriate level of cover can be provided,” he said.

Ahead of the next week’s Budget, the BRC has called on the UK government to provide top-up insurance cover.

“We’re not expecting the tax payer to take on more risk than private insurers. But, by matching the trade credit insurance that private insurers are willing to provide, the government can help fundamentally sound businesses weather the recession at relatively little cost. Without this backing, the lack of trade credit insurance will threaten the viability of more suppliers and retailers,” Robertson said.