Lord Mandelson, business secretary with the British government, has announced a program that provides up to £5 billion (€5.57bn-$7.36bn) in additional trade credit insurance to businesses that have suffered reductions in the level of credit insurance coverage.
Because of the international credit crunch, the issue of relations between suppliers and retailers is a hot one throughout Europe, with the possible exception of countries such as Germany where the buying groups are strong and can guarantee payments by the affiliated retailers.
Under the new program announced by Lord Mandelson, who is well known to the shoe trade as the former trade commissioner of the European Union who launched the anti-dumping duties on leather shoes from China and Vietnam, British suppliers of shoes and all other kinds of products and at all levels of the supply chain will be able to purchase six months worth of “top-up” insurance from the government if credit limits on their U.K. customers are reduced by credit agencies. They will be able to restore the insurance cover to the original level or to double the amount that they can get from the private sector, up to a level of £1 million (€1.1m-$1.5m).
Companies that wish to take advantage of this temporary program will be able to apply for it through their credit insurance providers. The three largest credit insurers in the U.K. – Euler Hermes, Atradius and Coface – have already agreed to offer the scheme to their eligible clients, and other credit insurance firms are discussing participation in the program with the government.
The program, which is part of the British government’s Working Capital Scheme, will last from May 1 until Dec. 31. It will apply to reductions in credit insurance that have been implemented since April 1. Lord Mandelson described it as a transitional measure intended to give viable businesses that are facing short-term financing problems a chance to adjust to changing circumstances.
The British government has also indicated that its export credits guarantee department will shortly discuss measures whereby it may share risks with banks that confirm letters of credit for U.K. exporters.
In a separate move, Lord Davies of Abersoch, U.K. trade and investment minister, has announced a £10 million (€11.1m-$14.7m) increase in the budget set-aside to help U.K. businesses export their products. Targeting British firms with a high potential for growth, the additional funds represent a 5 percent increase in the government’s budget for export assistance.
Richard Kotter, chief executive of the British Footwear Association, expressed pleasure at both measures, pointing out that they were consistent with the lobbying efforts made by the group and by the British Clothing Industry Association.
The British Retail Consortium joined their pleas, citing evidence that about half of the country’s large retailers and almost half of the country’s small and medium-sized firms had been impaired in their ability to do business because of the reduction or withdrawal of credit insurance. The body noted that the resulting cash squeeze could lead to inventory shortages and cash flow problems for retailers, and that it could lead to a loss of jobs as retailers have to choose between paying employees and paying suppliers.