News and Press
Withdrawal of trade credit insurance causes headache for retailers

Trade credit insurance is cover which suppliers often take out, given the time delay between supplying stock and receiving payment from retailers. This protects the supplier from the credit risk in case the retailer gets into financial difficulty. Retention of Title clauses in supply agreements are of little use in respect of protecting cash flow or in relation to stock of perishable goods.

However, during the downturn in the economy, there have been a number of reports of trade credit insurers removing cover for suppliers to a number of high profile retailers often with little justification. Removal of cover has a couple of potential consequences in that suppliers may decide not to supply to the retailer or they may demand a change in payment terms. However, during the downturn many suppliers may be prepared to take some risks rather than limit their retail accounts which will have a negative impact on their sales.

But Perran Jervis, head of the Retail team at TLT, says "the greatest concern for the removal of trade credit insurance is the resulting nervousness in the markets and with consumers on the high street." He adds that "share prices can plummet and strong brands can be damaged as a consequence." He advises that "retailers should do their utmost to reassure the markets and work closely with suppliers, as soon as they become aware of increased scrutiny from credit insurers, or there is any hesitation from them to provide cover."

Swift preventative action is vital because once a retailer is under the media spotlight, it is too late to avoid the unwelcome consequences.