Credit insurance extension wins tepid welcome

Published on Tuesday 9 June 2009 21:35

BUSINESS groups have welcomed the government's extension to the trade credit insurance top-up scheme – but warned that further measures to help hard-pressed companies are needed.

Business secretary Lord Mandelson yesterday announced that the scheme, which allows firms to purchase government-backed insurance for six months, would be extended to include companies which had their cover reduced as long ago as last October.

Previously, the 5 billion scheme, announced as part of this year's Budget, was only available to firms which had had cover reduced since April this year.

Trade insurers cover suppliers against companies collapsing or being unable to pay invoices.

If the insurance company believes that the company's viability is uncertain, it can withdraw cover – which means that suppliers would not be compensated if it failed to pay them.

The British Retail Consortium (BRC) said the extension was a "step in the right direction", but said it fell short of the April 2008 start date it has been campaigning for.

Retailers such as the collapsed Woolworths and housebuilders have been particularly hard-hit by the problem. Earlier this year, The Scotsman revealed that housebuilder Stewart Milne had had credit insurance withdrawn from some of its suppliers.

Mandelson commented: "This extension will give more small and medium-sized businesses flexibility to respond to a reduction in their credit insurance cover."

Jane Milne, BRC business environment director, said: "It should be back-dated to last April, when insurers began removing cover as the downturn started to bite."