The government has announced that it is to provide guarantees of up to £10 billion to Trade Credit Insurance schemes for business-to-business transactions.
Trade Credit Insurance, which provides essential cover to hundreds of thousands of business-to-business transactions, will receive up to £10 billion of government guarantees, ministers announced on 4 June.
The Trade Credit Reinsurance scheme, which has been agreed following extensive discussions with the insurance sector, will see the vast majority of Trade Credit Insurance coverage maintained across the UK.
The guarantees will support supply chains and help businesses during the coronavirus pandemic to trade with confidence, safe in the knowledge that they will be protected if a customer defaults or delays on payment.
Business Secretary of State Alok Sharma said: “Trade Credit Insurance is a daily necessity for hundreds of thousands of businesses across the UK – particularly those in non-service sectors such as the manufacturing and construction sectors.
“Our £10 billion guarantee gives peace of mind to businesses, allowing them to continue to trade and maintain liquidity in supply chains. This reinsurance scheme is an important step as we carefully set about firing up our economy as we emerge from the pandemic.”
The scheme is available on a temporary basis for nine months, backdated to 1 April, 2020, and running until 31 December, 2020, with the potential for extension if required.
It will be followed by a joint BEIS/HMT-led review of the Trade Credit Insurance market to ensure it can continue to support businesses in the future.
Industry and government working together
Commenting on the announcement that the government will provide guarantees of up to £10 billion to Trade Credit Insurance schemes for business-to-business transactions, James Talman, chief executive of the NFRC, said: “Roofing merchants and manufacturers will be comforted by the government announcement that it will underwrite the Trade Credit Industry with a £10 billion guarantee. This policy is a great example of industry and government working together, and we were glad to have supported the working group to develop this.”
James added: “Suppliers to the roofing industry will now be assured that the trade credit market will still be there where they need it, to give them the peace of mind if customers default.
“Government should now turn their attention to Professional Indemnity insurance, which was on shaky ground even before COVID-19. This insurance is critical for principal contractors and is a requirement in many contracts, but there are few firms left willing to provide this at a reasonable price.”
Meanwhile, John Newcomb, chief executive of the Builders Merchants Federation and chair of the Insurance and Surety Working Group for the Construction Leadership Council (CLC) COVID-19 Task Force, added: “The construction industry is one of the largest users of trade credit insurance accounting for some 30% of the market. Amongst other things, trade credit insurance gives builders’ merchants the confidence to trade freely with SME building firms who largely operate in the residential sector. The government-backed guarantee will keep cash flowing through the building materials supply chain and protect thousands of jobs.”
Andy Mitchell CBE, co-chair of the CLC, concluded: “Trade credit insurance plays a significant role in construction, giving businesses the confidence to trade with one another. Our Industry Recovery Plan seeks to provide the construction industry with the tools and support they need to get back to work. The launch of this government-backed guarantee to support the provision of trade credit insurance is therefore a welcome announcement.”