Author: By James Thompson
Claims made by UK companies for defaults on payments for domestic and
international trade surged by 48 per cent to 9,213 in the first quarter,
hitting the bottom line of leading credit insurers, the Association of
British Insurers (ABI) revealed yesterday. It was the fifth consecutive
quarter that claims have risen year on year.
Nick Starling, the ABI’s director of general insurance and health, said: “The
substantial increase in both the number of claims received by trade credit
insurers and the cost of those claims shows that trade credit insurers are
continuing to support businesses, especially small enterprises, through the
The ABI data lays bare the scale of the problems facing UK companies during
the first quarter, when the UK economy shrank by a jaw-dropping 2.4 per
cent. Trade credit insurers protect suppliers against non-payment by
companies which get into financial difficulty, and play a crucial role in
oiling the wheels of trade in the economy. Mr Starling said: “Trade
credit insurance claims are a good indicator of what is happening in the UK
economy and how that is affecting UK businesses. Clearly, the economic
situation remains very tough, trade credit insurers will continue to support
their customers through detailed risk assessments and paying claims when
things do go wrong.”
Over the past year, credit insurers have been cited in the administration of
retailers including Woolworths and Zavvi. Despite rising payouts for claims,
credit insurers such as Euler Hermes, Coface and Atradius have been
lambasted for scaling back cover for suppliers to vulnerable firms during
the recession, particularly in the retail, leisure and construction sectors.
Perhaps surprisingly, given the scale of the current recession, the number of
UK companies with trade credit insurance policies in 2008 remained fairly
static at 14,086, compared with 1997 when 13,793 had policies. However,
there was a dip to 10,413 and 9,811 having polcies in 2003 and 2004,
respectively, when the economy was in better shape.
The scaling back of credit insurance can put substantial pressure on a
company’s cash flow because suppliers often demand a change in terms to
continue delivering goods, such as payment up front or cash on delivery.
Last month, the Government extended its £5bn trade credit insurance top-up
scheme, which it introduced in April’s Budget, after limited take-up.
Eligibility for the scheme will be backdated to include suppliers whose credit
insurance cover has been reduced since 1 October, instead of being limited
to between 1 April and 31 December 2009.
View full article here
Author: Ezine Article BoardThis author has published 5773 articles so far.