Credit insurance top up scheme now open to more companies

The UK government has widened its £5bn trade credit insurance scheme meaning many more firms can now purchase top-up cover.

Since May 1 companies who have had their credit insurance cover reduced have been able to purchase six months top-up cover under the £5bn government scheme.

In response to pressure from business, Business Secretary Lord Mandelson said eligibility for the scheme will be backdated to include suppliers who had their cover reduced since October 1, 2008. Previously, the scheme was only available to companies who had cover reduced since April this year.

The government also said it would consider offering credit insurance for companies whose protection had been completely withdrawn.

“We hope the revised scheme will encourage businesses, both large and small, to take advantage of the extended terms.

Shaun Purrington, regional director of Atradius UK

Business Secretary Lord Mandelson said: 'This extension will give more small and medium sized businesses flexibility to respond to a reduction in their credit insurance cover.'

CBI Director-General, Richard Lambert said: 'This change, which the CBI called for, gives more help to those businesses left vulnerable without sufficient trade credit insurance cover since the autumn. Restoring confidence is critical to improving the economy, and this gives companies more certainty about their ability to trade.'

In another development, credit insurance provider HCC will join the three largest credit insurers (Euler Hermes, Atradius and Coface) as a provider of the Government scheme.

Trade credit insurers welcomed the move.

“This extension will give more small and medium sized businesses flexibility to respond to a reduction in their credit insurance cover.

Lord Mandelson

Shaun Purrington, regional director of Atradius UK and Ireland commented: ‘We welcome the amendments to the recently launched trade credit insurance top-up scheme.’

‘The original scheme generated considerable interest within the business community, however the take-up has been lower than expected and we hope the revised scheme will encourage businesses, both large and small, to take advantage of the extended terms.’

He added: ‘Atradius remains committed to helping UK businesses survive the downturn; enabling trade as much as possible by covering risks prudently and responsibly.’

The scheme, which runs until December 31, 2009, allows suppliers to purchase Government-backed insurance to either restore cover to the original level or double the amount they are able to obtain from the private sector up to the value of £1m (whichever is the lower).

Key points

What is trade credit insurance?
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).

What does the government scheme do?
The scheme will now cover a business' trade providing the cover was reduced after October 1, 2008. The business would simply be able to purchase a policy, topping up their cover to the maximum level it was since October 1, 2008 or to match the reduced level of cover so long as the government bears no more than 50% of the total risk. This will also be the case where a company has had their cover withdrawn completely since October 1 but had since had cover partially reinstated.

How can I access the scheme?
The three largest credit insurers (Euler Hermes, Atradius and Coface), and now also HCC International Insurance Company plc, have agreed to offer the scheme to their eligible clients. Scheme membership has also been opened up to other credit insurance providers with whom the government is currently in discussions. Eligible businesses should apply for the scheme through their credit insurance provider.

How important is it?
In 2008 credit insurance firms insured over 300bn pounds worth of turnover, covering over 14,000 UK clients in transactions with over 250,000 UK businesses.