Government to provide credit insurance guarantee
The government has stepped in to support businesses who have seen their credit insurance cover reduced or premiums increase in the wake of the Coronavirus pandemic.
Credit insurance is a vital tool for thousands of UK businesses, who rely on it to protect their cash flow against the risk of late payment and debtor insolvency. With the risk of both of these increasing as the impact of the crisis continues to be felt, many businesses have seen their level of cover reduced, withdrawn or premiums increasing.
After lobbying from the Association of British Insurers and UK Finance, the Economic Secretary to the Treasury, John Glen, yesterday announced the government will temporarily guarantee business-to-business transactions currently supported by credit insurance.
How will it work?
Although full details are still to be announced, it will be delivered through a temporary reinsurance agreement with insurers currently operating in the market and is hoped to be in place by the end of May.
The guarantee will cover domestic and export trading activity – provisionally until the end of 2020 – providing businesses with much-needed confidence that they will be protected if a customer defaults on payment.
As of April 2020, over £171 billion of business activity was insured, covering transactions between around 13,000 suppliers and 650,000 buyers.
Credit insurance policies can be provided as a standalone policy or through non-recourse invoice finance facilities, which additionally see the lender advance up to 90% of the value of invoices within 24 hours of being raised to provide vital cash flow support.
As well as cash flow protection, credit insurance gives businesses the confidence to continue trading with certain customers and even improve access to funding under certain products.