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Government extends trade credit insurance scheme

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The government has made changes to its trade credit insurance top-up scheme so that more firms can take advantage of it.

The scheme, which was announced in the Budget, came into effect on 1 May and is designed to help businesses that are facing cuts in the level of available credit insurance cover.

Trade credit insurance is used to protect firms against the risk of customers defaulting on their payments for goods.

Under the scheme, UK businesses can purchase six months’ ‘top-up’ insurance from the government if credit limits on their UK customers have been cut.

Originally, firms could backdate to include any reductions since 1 April 2009.

However, business groups have been arguing that many firms suffered reductions which went back as far as last autumn, and that the qualifying restrictions of the scheme did little to help them.

In response, the government has now announced that eligibility for the scheme will be backdated to include suppliers that have had their cover reduced since 1 October last year.

The scheme, which runs until 31 December 2009, allows suppliers to purchase government-supported insurance either to restore cover to the original level or to double the amount they are able to obtain from the private sector up to the value of £1 million (whichever is the lower).

Lord Mandelson, the Business Secretary, said: “This extension will give more small and medium sized businesses flexibility to respond to a reduction in their credit insurance cover. We are acting decisively to help more businesses and allow them the breathing space to adjust their business models in response to the current climate.”

Firms have 28 days after a cut in the cover to request that their insurer participates in the scheme.

Businesses can top up their cover to the maximum level available from 1 October 2008 or match the reduced level of cover so long as the government bears no more than 50 per cent of the total risk.

Although the scheme does not include businesses that have had their insurance completely withdrawn, another change means those firms that had previously lost their cover after 1 October 2008 but have since had it at least partly reinstated can now qualify for help.

Richard Lambert, the CBI’s director general, welcomed the move: “This change, which the CBI called for, gives more help to those businesses left vulnerable without sufficient trade credit insurance cover since the autumn. Restoring confidence is critical to improving the economy, and this gives companies more certainty about their ability to trade.”

David Frost, the director general of the British Chambers of Commerce, also applauded the decision but urged that the availability of government help needs to be communicated quickly and effectively to those firms affected.

Businesses that wish to apply for the scheme should contact their trade credit insurer.