The Government has unveiled plans for a £5 billion trade credit insurance guarantee scheme to protect supply chains.
From May 2009 until end December 2009, suppliers will be able to purchase six-months’ top-up insurance from the Government if credit limits on their UK customers are reduced, backdated to 1 April 2009.
This will provide another alternative to the abrupt disruption of supply and cashflow, and giving time for the businesses affected to adjust to changing circumstances.
Currently 14,000 companies of all sizes buy trade credit insurance against supplies to over 250,000 UK businesses as a guarantee that their bills will be paid.
Suppliers who experience reductions in credit limits may choose to stop future deliveries or refuse to extend credit, adding to pressures on firms potentially already facing difficulties and tending to reduce the level of trade.
The Government has worked collaboratively with the private sector insurers, who will provide this product on the Government’s behalf, to design a scheme that is well targeted and protects taxpayers’ interests.
Therefore, the amount available to each supplier if a company’s credit limit is reduced will be that which either restores cover to the original amount, doubles the amount the company is able to obtain from the private sector, or £1 million, whichever is the lower.
The aggregate level of insurance provided under the scheme will be capped at £5 billion, and companies from all sectors of industry and from all stages of the UK supply chain can access the scheme.
Deloitte head of retail Tarlok Teji said: “The announcement in today’s Budget that the Government will provide a ‘top-up’ trade credit insurance scheme up to £5 billion is to be welcomed.
“It is clearly too early to judge whether the proposals will be a success or not.
“However, over the past 12 months the reduction in credit insurance and in some instances the withdrawal of it has hurt both retailers and suppliers and created much uncertainty in the sector. Any move to boost confidence must therefore be supported.”