The British Retail Consortium (BRC) is urging the government to extend the trade credit insurance scheme, which provides guarantees for retailers. The scheme is currently scheduled to end on June 30, and there are concerns that many retailers will be left without cover. This could force retailers to pay upfront for goods, tying up their much-needed cash after a difficult year of trading.
The trade credit reinsurance scheme was introduced in May 2020 and offers indemnities to insurers who cover suppliers against the risk of non-payment by their customers. Although it was extended in December, it is now set to expire at the same time as the moratorium on evictions for property renters.
The BRC has expressed worries in a letter to business minister Paul Scully, stating that if insurers base their risk assessments on recent financial performance, a number of retailers may lose their coverage. The BRC emphasizes that the withdrawal of support is a “significant concern” and highlights that several suppliers have already been informed by large insurers that their cover will be removed. Insurers typically require at least six months of consistently strong trading data before reassessing coverage decisions. However, many retailers in the industry have been closed for a significant portion of the past year and a half, making it impossible to provide this data.
Retailers that have submitted provisional data have experienced delays in insurers reevaluating underwriting decisions. While insurers argue that overall coverage has largely returned to pre-pandemic levels and they are taking into account the disruption caused by lockdowns, suppliers and lenders may still hesitate to extend credit to retailers with weakened financial positions due to store closures.
The lack of credit insurance is a major issue for retailers. The CEO of a smaller apparel retailer, who requested anonymity, revealed that around 10% of their annual turnover is tied up in prepayments that could be avoided if their suppliers had insurance against them. This CEO supports the extension of the insurance scheme, but notes that insurers typically require two years of profits before providing coverage.
In addition to the trade credit insurance scheme ending, the business rates holiday will also conclude on June 30. Although smaller retailers still have access to a discount, retailers are facing additional pressures as the furlough scheme is gradually phased out throughout the summer.
The BRC’s call for an extension of the credit insurance scheme underscores the ongoing challenges retailers continue to face as they recover from the impact of the pandemic. The government must carefully consider the implications of ending these support measures and the potential consequences for businesses, particularly during the crucial Christmas trading period.
Useful links:
1. Trade Credit Insurance scheme information
2. Financial Times article on BRC’s concerns about trade credit insurance
