Government extension of the Trade Credit* top-up

As you know, when insurers began to withdraw credit insurance for troubled retailers in April 2008, the government introduced in the April 09 Budget a top-up insurance scheme to restore full insurance cover to retailers that had had insurance reduced or withdrawn. They backdated this to October 1st 2008, meaning it applied to those retailers getting into trouble after that date. However, retailers want the cover extended back to April 08 in order to include retailers that suffered from credit insurance withdrawal from that date.

While the politicians and retailers negotiate a 'win-win' vote-retrieval solution, suppliers need to explore the extent of their credit risk by calculating the incremental sales required in the event of one or all of such retailers going bust…see www.kamcity.com/namcalc for details, but a back-of-envelope job will reveal that a supplier making 10% net profit on a retailer that goes bust owing £150k will need incremental sales of £1.5m (in this market!) to recover the lost profit. If you deal via wholesalers, and their retail customer goes bust, they need incremental sales of £15m....

* Credit insurance or trade credit insurance (also known as business credit insurance) is an insurance policy and risk management product that covers the payment risk resulting from the delivery of goods or services. Credit insurance usually covers a portfolio of buyers and pays an agreed percentage of an invoice or receivable that remains unpaid as a result of protracted default, insolvency or bankruptcy. Trade credit insurance is purchased by business entities to insure their accounts receivable from loss due to the insolvency of the debtors. The costs (called a "premium") for this are usually charged monthly, and are calculated as a percentage of sales of that month or as a percentage of all outstanding receivables.

Credit insurance insures the payment risk of companies. Policy holders require a credit limit on each of their buyers for the sales to that buyer to be insured. The premium rate is usually low and reflects the average credit risk of the insured portfolio of buyers.