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Food industry adds voice to calls for government support for trade credit insurance

audit_business_financial_data_credit_Broker Print publication

13/05/2020

Trade credit insurance provides cover for businesses if customers who owe money for products or services do not pay their debts, or pay them later than the payment terms dictate. It gives businesses the confidence to extend credit to new customers and improves access to funding, often at more competitive rates.

There are concerns that the expected increase in insolvencies due to the Covid-19 pandemic could see trade-credit insurance withdrawn from a range of sectors (including food and drink) resulting in companies having to pay suppliers up front. This will then have the knock on effect of an increase in pressure on the cashflow of companies.

Food and drink manufacturers are key suppliers to the hospitality trade which has been devastated by the coronavirus crisis, and so the food and drink sector is one of those particularly affected by a wider reduction in trade credit cover or an increase in its cost. Andrew Kuyk, the director general of the Provision Trade Federation, has pointed out that a lack of (or prohibitively expensive) trade credit insurance was already affecting those food and drink manufacturers that had lost business with foodservice clients and were trying to forge new commercial relationships.

It is for this reason that Government is being asked to step in and, in effect, underwrite trade credit insurance, to take on some of the cost of insurance payouts in instances where companies fail to pay suppliers.

A spokeswoman for the Association of British Insurers (ABI) explained: “Insurers work closely with their customers, discussing with them where credit limits can be adjusted to help avoid bad debts. But this cannot happen where there is likely to be a sharp rise in insolvencies across many business sectors, such as from Covid-19. This means that the availability of this cover is likely to be severely reduced in the future. We want to avoid this, so we are discussing with the government the scope for temporary state support to ensure that businesses can continue to obtain cover that meets their needs.

The ABI is urging Government to follow models already put in place in other European countries where companies are being supported by the State to maintain supply chains through a reinsurance scheme. Since many European governments are already underwriting trade credit, the concern is that UK companies will be at a competitive disadvantage without such support.

WM comment

We understand that food and drink industry leaders have been in talks with Government in recent weeks and we will have to wait and see if Government responds to industry pressure.

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