Trade credit insurers must rebuild trust

Jun 30 2009 by Liz Mayes, The Journal

WHILE our most recent survey on access to finance indicated that credit conditions were starting to stabilise, we are still getting feedback from members that trade credit insurance is a problem and having an adverse impact on their ability to do business.

Over the three months to May its availability has continued to fall. Specifically companies are facing a decline in the credit limit being insured and a drop in the number of customers covered by insurance.

Credit insurance matters to business because without it suppliers are unable to shift the same volume of sales.

Businesses face stricter payment terms, which have major implications for working capital, and ultimately stocks may be reduced or run out.

The CBI had argued strongly that the Government’s original trade credit insurance top-up scheme was a step in the right direction, but didn’t go far enough.

Given that the majority of insurers had already cut back on cover before April 1, the benefits to business from the original scheme were seriously diluted.

Because it is extended to last October, more firms will find it of use, but it won’t help those who have seen their cover withdrawn completely.

The CBI believes much more could be done. That is why we are continuing to lobby the Government to step in with support for exporters, who will help to lead us out of the recession.

For the North East this will be critically important in enabling our economy to come out of the recession quickly, once the upturn begins.

Credit insurers themselves also need to step up to the plate. They need to tackle perceptions over broad-brush, sector-based risk assessments and provide clarity over the sort of information disclosure companies can reasonably expect to have to make. The recent “statement of principles” issued by the industry should go some way to tackling these concerns.

Beyond that, trade credit insurers have a job to do to rebuild trust with business and demonstrate that they are a long-term partner in credit management.

Liz Mayes is assistant regional director of CBI North East