Gov steps in with cover during crunch

Posted on 23 Apr 2009 by The Manufacturer

Business Secretary Lord Mandelson has launched a scheme to provide £5bn of additional trade credit insurance.

The scheme is for businesses who have suffered reductions in their level of cover. It 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 capital facilities.

“This scheme will provide a much needed breathing space for businesses suffering as a result of the reduction in trade credit insurance,” said Mandelson.

“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 circumstances.”

Under the scheme, open to companies from all sectors and all stages of the UK supply chain, 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.