Nigel Birney, Head of Trade Credit, Willis Towers Watson Belfast
Last week, the Treasury announced that the UK Government will support businesses through the coronavirus crisis by guaranteeing business-to-business transactions currently supported by Trade Credit Insurance. As a business support measure, it will likely not receive the same attention as the furlough scheme or the CBILS but its importance for local firms cannot be understated.
The Treasury’s 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 underwriters 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 NI businesses. This announcement 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 NI 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When Trade Credit Insurance cover is reduced or withdrawn, it causes disruption to supply chains, as credit lines are removed, and businesses are left exposed to unacceptable credit risks of non-payment or bad debt.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 cashflows 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 credit insurance 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 NI 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 MLA 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. I look forward to the full details of the scheme being disclosed and I hope it is rolled out as quickly as possible to allow our local firms to manage their credit risk and trade with confidence, on a level playing field with their competitors at home and abroad and, following this announcement, without the fear of a potentially fatal bad debt.