Credit Reinsurance Scheme extended as rising late payment revealed

12/01/2021

Businesses have welcomed the news that the Government has extended its Trade Credit Reinsurance Scheme as new figures reveal that the pandemic has exacerbated Britain’s late payment problem.

According to the Institute of Directors, over a third of company directors polled said they had faced an increase in late payments during the pandemic, with almost one in ten reporting they had experienced significantly more problems than usual.

The Institute warned that the challenge could worsen as restrictions continue.

Roger Barker, Director of Policy at the Institute of Directors, said: “Sadly, late payments are a perennial issue for SMEs, and the pandemic certainly hasn’t helped things. With so much pressure on cash flow, many companies have been left in the lurch through no fault of their own.”

Fortunately, trade credit insurance, which protects businesses if customers in the supply chain who owe money for products or services do not pay their debts or pay them later than the payment terms dictate, is available.

Increased support

The Government recognises that credit insurance is a vital tool for thousands of UK businesses and has extended its Trade Credit Reinsurance Scheme until 30th June 2021.

Introduced in June 2020, the scheme ensures that trade credit insurance coverage and credit limits are maintained during the pandemic, helping businesses to trade with confidence.

The £10bn temporary business support measure was initially set to run until 31st December 2020 but it has now been extended for a further six months.

Commenting on the extension, Graham Walsh, ABI Senior Policy Adviser, General Insurance said: “Maintaining trade credit insurance cover between suppliers and their clients is a key component in enabling the UK economy to overcome some of the challenges arising from the pandemic.

“We’re pleased to have been able to help the Government agree an extension to the scheme, meaning UK businesses can continue to benefit from a greater level of protection from trade credit cover than might have otherwise been possible.”

Importance of credit protection

Even before the pandemic, the importance of credit protection was already apparent.

In recent years we have witnessed the “domino effect”, where one company’s insolvency increases the insolvency risk for others. This puts day-to-day operations at risk and threatens the jobs of their employees.

And now, given the disruption to economic activity, reduced cash flow and the resulting increased risks of insolvency and default in the market, it is perhaps more important than ever.

Particularly while so many unknowns persist, such as how long the lockdown measures are likely to continue and when a sense of normality will return, businesses must prioritise protecting their cash flow.

How can credit insurance help?

Credit insurance protects businesses against the risks of bad debt by safeguarding your cash flow against debtor insolvency or protracted default.

In the event an invoice becomes aged or a customer enters insolvency proceedings, the credit insurance company will ensure that you get paid for any goods or services you have supplied, subject to a designated credit limit.

Which options are available?

Credit insurance can either be obtained against a business’s whole turnover – providing comprehensive protection – or a selective portion of customers, who might pose a greater risk to your business.

Whilst facilities can be provided by credit insurance companies as a standalone product, bad debt protection can also be incorporated into an invoice finance facility, which will additionally advance up to 90% of an invoice’s value within 24 hours of its issue to help bridge the gap between providing goods or services and getting paid.

While standalone credit insurance facilities are subject to Insurance Premium Tax of 12%, bad debt protection provided through an invoice finance facility is not as it’s a different structure of protection.

 

Is your cash flow protected?

If not, we can identify the most suitable facilities and insurers for your needs.

As a commercial finance broker, we’ve been supporting our clients with their funding and credit insurance needs since 1997.

To discuss your requirements with our team of experts and explore whether credit insurance would be suitable for your business, call us on 0800 9774833 or request a call back at a convenient time.