LAST week the Treasury announced that the government will support businesses through the coronavirus crisis by guaranteeing business-to-business transactions currently supported by trade credit insurance.
Trade credit insurance safeguards companies against the risk that their customers go bust before paying for goods they have ordered, helping businesses to trade with confidence. It covers about £171 billion of business activity in the UK, between 13,000 suppliers and 650,000 customers.
As a business support measure, it won't get the same attention as the furlough scheme or the CBILS, but its importance for local firms cannot be understated.
The announcement confirms that the government views the availability of trade credit insurance to cover business-to-business transactions both domestically and globally as hugely important and a vital component as we look to rebuild the economy and re-establish supply chains.
The increase in risk caused by Covid-19, and the unprecedented level of expected claims, has forced under-writers to rebalance their risk portfolios and guide their clients by reducing or completely withdrawing cover on many companies in Northern Ireland, the Republic of Ireland and other export markets.
This government support will provide a much-needed boost to the local economy by maintaining and sustaining credit lines for many Northern Ireland businesses. It is also highly relevant for local companies that get credit from their trade suppliers, both domestically and from abroad. Those suppliers that are insured and supported by relevant state-backed schemes should be able to continue to supply local companies that have been hard-pressed and have seen their own credit ratings recently downgraded by the credit insurers.
When trade credit insurance cover is reduced or withdrawn, it causes disruption to supply chains, as credit lines are removed, and businesses are left exposed to unacceptable credit risks of non-payment or bad debt. This can place an enormous strain on cash flows or, in many cases, force otherwise good businesses to cease trading.
As the largest credit insurance broker in Ireland, we have a strong sense of what is going on within the industry and recently it was becoming an increasingly grim picture. Not only does trade credit insurance provide financial protection by helping businesses to grow safely, but crucially it also underpins many working capital facilities and access to such facilities will be vitally important as businesses begin trading again.
Over the last number of weeks governments across Europe have introduced credit insurance guarantee schemes to support domestic and international trade, which we broadly welcomed and strongly lobbied for local support to take our concerns to Westminster.
We knew that if similar support was not forthcoming from the UK Government the impact on Northern Ireland businesses could have been catastrophic.
We potentially could have had the unpalatable situation where a company in Ballymena would have been unable to get insurance on a business in Portadown, because the UK insurer was no longer comfortable with the risk profile of the buyer, yet a supplier in Germany could sell to the same buyer in Portadown and the debt would be insured under the German government backed guaranteed scheme.
Economy Minister Diane Dodds and her department worked hard to help secure this scheme with the Treasury and deserves praise for listening to and making a strong case for businesses in Northern Ireland.
But it needs rolled out as quickly as possible to allow local firms to manage their credit risk and trade with confidence, on a level playing field with their competitors at home and abroad, without the fear of a potentially fatal bad debt.
:: Nigel Birney is head of trade credit at Willis Towers Watson Belfast
