Credit Where Credit Is Due - Trade Credit Insurance Guarantee Launched

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• Credit Where Credit Is Due - Trade Credit Insurance Guarantee Launched

In May, the government pledged to support businesses through a Trade Credit Insurance guarantee - which came on stream on June 4.

Businesses with supply chains which rely on Trade Credit Insurance and who are experiencing difficulties maintaining cover due to the effects of coronavirus will get support as of now the Economic Secretary to the Treasury, John Glen has announced.

Trade Credit Insurance provides cover to hundreds of thousands of business to business transactions, particularly in non-service sectors, such as manufacturing and construction. It insures suppliers selling goods against the company they are selling to defaulting on payment, giving businesses the confidence to trade with one another. But due to coronavirus and businesses struggling to pay bills, they risk having credit insurance withdrawn, or premiums increasing to unaffordable levels.

To prevent this from happening, the government will temporarily guarantee business-to-business transactions currently supported by Trade Credit Insurance, ensuring the majority of insurance coverage will be maintained across the market. This will support supply chains and help businesses to trade with confidence as they can trust that they will be protected if a customer defaults on payment.

The Trade Credit Reinsurance scheme, has been agreed following extensive discussions with the insurance sector - there will be up to £10 billion of government guarantees.

Businesses do not need to apply directly to this scheme, as support will be administered directly between the Government and available insurers operating in the UK market.

The scheme is available on a temporary basis for nine months, backdated to 1 April 2020, and running until 31 December 2020, with the potential for extension if required.

The scheme will be followed by a joint BEIS/HMT-led review of the Trade Credit Insurance market to ensure it can continue to support businesses in future.

 

 “This country’s businesses are crucial in helping us to kick start the economy as we get back to work and I will do everything I can to help support them through this difficult time. By guaranteeing business-to-business transactions currently supported by Trade Credit Insurance, we will help to maintain a vital cog in our economy.”

– John Glen 

Economic Secretary, The Treasury

 

Agreement with insurers

Business Minister, Paul Scully, said: "Giving businesses the confidence to continue trading is vital to seeing us through this crisis. This guarantee will be essential as we seek to reopen new sectors of the economy and get the UK back to work in a way that is safe for everyone. The guarantee will be delivered through a temporary reinsurance agreement with insurers currently operating in the market."

 

The Installer asked a range of industry and business organisations to comment on the Trade Credit Insurance guarantee and received the following responses:

 

Construction Leadership Council

Andy Mitchell, co-Chair of the Construction Leadership Council, said: “Trade credit insurance plays a significant role in construction, giving businesses the confidence to trade with one another. Our Industry Recovery Plan seeks to provide the construction industry with the tools and support they need to get back to work. The launch of

this government-backed guarantee to support the provision of trade credit insurance is therefore a welcome announcement.”

 

Builders Merchants Federation

Chief Executive of the Builders Merchants Federation and Chair of the Insurance and Surety Working Group for CLC Covid-19 Task Force, John Newcomb said: “The construction industry is one of the largest users of trade credit insurance accounting for some 30% of the market. Amongst other things, trade credit insurance gives builders’ merchants the confidence to trade freely with SME building firms who largely operate in the residential sector. The government-backed guarantee will keep cash flowing through the building materials supply chain and protect thousands of jobs.”

 

British Chamber of Commerce

BCC Director General Adam Marshall said: "The government has demonstrated once again that it is listening to the concerns of our business communities. The launch of a government-backed guarantee to support the provision of trade credit insurance will help ensure that this vital lifeline remains available to businesses during and after this crisis, helping to maintain supply chains and trade.

 

Confederation of British Industry

CBI Chief Economist Rain Newton-Smith, said: "The government’s decision to backstop trade credit insurance will protect thousands of jobs and allow many businesses across the UK to restart operations. This intervention will keep cash flowing within critical supply chains and more importantly, it will help lower risk for our exporters and ensure that UK firms can continue to trade with other countries."

 

Federation of Small Businesses

FSB National Chairman Mike Cherry, said: "As the pandemic continues to bite, small firms need all the help they can get to continue to trade domestically and internationally. This temporary reinsurance scheme should mean that small businesses don’t have their trade credit insurance withdrawn and should be able to continue to access affordable insurance to support trading with other businesses.

"The intervention provides much needed confidence for small businesses to get back on their feet and start trading again as we enter recovery. This protection will be particularly helpful for small businesses operating in the supply chains of sectors like construction and manufacturing."

Picture: With thanks to the Construction Leadership Council which has applauded the umbrella effect of the government's Trade Credit Insurance Guarantee that came into effect on 4 June.

Article written by Cathryn Ellis
10th June 2020

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