Keep trade credit top-up, government urged

A government scheme designed to help firms that are struggling to secure trade credit insurance cover must be extended.

The call has come from the British Retail Consortium (BRC) following the results of its latest quarterly credit survey.

According to the poll, 38 per cent of large retailers and 28 per cent of SMEs reported that the reduction or withdrawal of trade credit insurance has had an adverse effect on their businesses.

In the last Budget, the Chancellor announced a special scheme to help those businesses facing problems with agreeing affordable trade credit insurance.

Under the scheme, viable businesses can apply for a top-up guaranteed by the government should they experience a cut in cover.

The insurance is important because it protects suppliers who sell goods on credit to companies, such as retailers, against the risk they will not get paid.

However, the survey revealed that 95 per cent of SMEs and 85 per cent of large firms believed that the top-up scheme had yet to help them.

In response, the BRC said that the government should extend eligibility for the top-up period back to 1 April 2008, when insurers started to remove cover as the downturn began. The current cut-off date is 1 October 2008.

The scheme should also be extended forwards too, beyond the 31 December 2009 date on which it is due to end.

Tom Ironside, the BRC’s business environment director, said that it is vital to retain trade credit insurance: “If trade credit insurance is withdrawn, suppliers demand to be paid upfront. This can cause cash flow problems, leading businesses to cut jobs and stock as they divert money to pay suppliers.”

He also wants the government to put pressure on insurers to make sure that trade credit risks are accurately assessed. The vast majority of respondents to the survey thought that risks were not always correctly judged by insurers.

Mr Ironside concluded: “The top-up insurance scheme is due to finish at the end of this year and VAT is returning to its higher level at the same time. To prevent the retail recovery and the three million jobs provided by the sector being undermined, the top-up scheme must be retained into 2010.”