Securing the supply chain
How will the Government’s scheme to reduce risk for suppliers affect you? .
Alistair Darling’s scheme for Government-backed business credit insurance support has met with approval from many small business owners. Based on a similar approach already established in France, the UK Government plans to use up to £5bn to plug the gap caused by an increase in risk for insurers covering the losses if suppliers don’t get paid.
Headline-grabbing failures of big high street names like Woolworths and Zavvi show exactly why credit insurance is needed. Many suppliers to the retail sector have found such cover withdrawn from them after worried underwriters have, according to the Association of British Insurers, seen an increase of 40% in the value of claims.
This withdrawal of credit limits places cash flow pressures and financial risks onto the shoulders of already struggling business owners. Their only alternative has been to demand payment up front from customers at exactly the time when competition is fierce and suppliers themselves are cash-strapped.
The government scheme will extend cover to suppliers who wish to buy six months ‘top-up’ to make up for any reduction under their existing commercial agreement with their insurer. But only those who have experienced reduced cover from 1 st April will benefit. However, it is not available to companies who have experienced a complete withdrawal of their cover, nor does it cover export sales. The Government’s argument for this is that they are allowing the private sector to identify risk levels, and in turn manage their own exposure using the expertise of practising actuaries.
But for many critics of the scheme, it falls short with the stringent restriction making it a case of ‘too little, too late’ to have a big enough effect on easing the burden for small businesses.
If you are interested in this facility you should speak to your credit insurer in the first instance, but make sure it is within 28 days of your credit limit being reduced or you won’t be eligible.
