Retailers struggle with credit

Half of large retailers and over 40 per cent of small and medium-sized business say the reduction or withdrawal of trade credit insurance has undermined their ability to trade. The findings are part of the British Retail Consortium's (BRC's) Credit Conditions Survey published on Friday. Nine out of ten SME respondents and two-thirds of larger retailers believe that trade credit insurers are not in a position to assess accurately the risk of a supplier not getting paid.

Trade credit insurance protects suppliers who sell goods on credit to companies, such as retailers, against the risk they will not get paid. If credit insurance is withdrawn, suppliers demand to be paid upfront. This can leave retailers short of stock, create cash flow problems for retailers and cost jobs as retailers seek to divert funds from wages to paying suppliers. Banks also use retailers' insurability as one of the criteria for making lending decisions.

The BRC survey reveals a third of SME retailers had experienced a contraction in lending by their bank. Of those, 89 per cent said it had affected their businesses, 75 per cent had cut stocks (bad news for manufacturers and suppliers) and 30 per cent had cut employment.

Ahead of the next week's Budget, the BRC is calling on the Government to provide top-up insurance cover up to the level that private insurers are prepared to provide.

Stephen Robertson, British Retail Consortium Director General, said: "For retailers to survive and keep people in work they need to keep shelves stocked with the goods customers want. In these uncertain times, it's even more important suppliers have the confidence that trade credit insurance brings. Cover must remain available.

"We're not expecting the tax payer to take on more risk than private insurers. But, by matching the trade credit insurance that private insurers are willing to provide, the Government can help fundamentally sound businesses weather the recession at relatively little cost. Without this backing, the lack of trade credit insurance will threaten the viability of more suppliers and retailers.

"UK retailing employs more people than the whole of manufacturing and is every bit as deserving of support. We're not asking for handouts but, for those retailers that need it, a safety net which underpins trade credit arrangements is essential."

Image: credit cards