Small firms get trade-credit lifeline

Small businesses dependent on trade-credit insurance have been thrown a lifeline by a new government pledge to stand behind such policies. Trade credit insurance protects companies against the risk that their customers go bust before paying for goods they have ordered. It plays a vital role in underpinning supply chains in a range of industries. 

However, with insurers warning they face huge claims because companies in financial distress are struggling to pay their bills, there has been widespread concern that it may become prohibitively expensive to buy cover – or even that policies will no longer be available. That could make larger companies extremely reluctant to trade with smaller businesses, damaging overall growth further. 

Now, however, the government has promised to set up a reinsurance arrangement with key insurers in the UK market, which will effectively mean that it is guaranteeing trade-credit insurance policies. Details of the arrangement, which follows similar initiatives launched in France and Germany, will be unveiled by the end of the month.