Government announces trade credit insurance cover for business
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Issued 22 APRIL 2009
Business Secretary Lord Mandelson today launched a scheme
providing up to £5bn of additional trade credit insurance to businesses
who have suffered reductions in their level of cover. This will be
delivered as part of the Working Capital Scheme and will help mitigate
the cash flow constraints caused by the withdrawal of trade credit
insurance cover and constraints on the provision of working capital
that this withdrawal has created.
From May 1 until December 31 this year, UK businesses will be
able to purchase six months' 'top-up' insurance from the Government if
credit limits on their UK customers are reduced. The qualifying window
will be backdated to include any reductions since April 1.
The scheme comes in response to growing concern from
businesses across all sectors of the economy that reductions in the
value of insurance cover create pressure on suppliers to shorten
payment terms, and can place additional pressure on businesses' working
Business Secretary Lord Mandelson said:
"This scheme will provide a much needed breathing space for
businesses suffering as a result of the reduction in trade credit
"We will not prop up bad businesses or take unacceptably high
risks, but will provide targeted support to address specific challenges
that businesses are facing and help maintain supply chains".
"This scheme is a transitional measure which will give viable
businesses facing short term problems a chance to adjust to changing
Companies from all sectors and from all stages of the UK
supply chain will benefit from the increased certainty that this scheme
gives, providing real and targeted assistance for British businesses.
Under the scheme, suppliers can purchase Government-backed
insurance to either restore cover to the original level, double the
amount they are able to obtain from the private sector, or £1 million,
whichever is the lower. This design protects the interests of the tax
payer as Government will never take on more risk than the private
Government has worked collaboratively with the private sector
insurers who will provide this product to their clients on Government's
The first £1bn tranche of guarantees under the £10bn Working
Capital Scheme has now been completed with the banks. A maximum of £5bn
of top-up cover for trade credit insurance will also be provided as
part of the Working Capital Scheme and the Government will also consult
on guaranteeing letters of credit.
1. Trade credit insurance contracts provide suppliers
insurance against the risk of a buyer defaulting on their payment for
goods after a period of credit. The product helps give suppliers
confidence to extend sometimes lengthy payment terms to their buyers
and banks the security to provide working capital facilities. By
offering suppliers protection against financial loss, trade credit
insurance is sometimes used to support provision of financing products
such as loans, invoice discounting and factoring services. Reduction or
withdrawal of credit insurance can therefore lead to financial pressure
on both buyers (as suppliers may wish to shorten payment terms) and on
suppliers (due to its interaction with other financial products).
2. The three largest credit insurers (Euler Hermes, Atradius
and Coface) have agreed to offer the scheme to their eligible clients.
Scheme membership has also been opened up to other credit insurance
providers with whom Government is currently in discussions. Eligible
businesses should apply for the scheme through their credit insurance
3. In 2008 credit insurance firms insured over £300bn of
turnover, covering over 14,000 UK clients in transactions with over
250,000 UK businesses.
4. The scheme will come in to effect following appropriate
Parliamentary approval, expected to be received by May 1, 2009.
5. Reductions in the value of insurance which have occurred
since April 1, 2009 will be eligible for the scheme, meaning some
businesses will be able to benefit from the scheme immediately it comes
6. Further details of the scheme can be found on the
BusinessLink website at the following URL http://www.businesslink.co.uk/creditinsurance
7. On Tuesday April 21, the Association of British Insurers
released a Statement of Principles outlining the standards of service
customers can expect from their insurance provider. All insurers
offering the Government top-up scheme are required to have signed up to
the Statement. The Statement can be found at the following URL
8. The Export Credits Guarantee Department will shortly
consult on a possible measure to share risk with banks that confirm
letters of credit for UK exporters.
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Article Published/Sorted/Amended on Scopulus 2009-04-23 12:13:26 in Business Articles