Michael Ankers: severe problems for small companies.

Credit insurance scheme isn't working, says CPA

Published:  27 July, 2009

LONDON: The Government's credit insurance 'top-up' scheme, launched in the Budget back in April is not working, according to a survey carried out by the Construction Products Association. 

In a survey of 100 companies across the industry, the CPA found only one company that had taken advantage of the scheme over the last three months and even they had found the scheme "very expensive with very limited cover".

Commenting on the findings, CPA chief Executive Michael Ankers said: "The survey highlights the significant impact on companies in our industry from the withdrawal or reduction in the level of credit insurance available. Ninety-five per cent of companies have seen credit insurance totally withdrawn from at least some of the companies they supply and even where insurance has been maintained, the average reduction in cover is more than 30%. For many companies the situation has been much worse.

"As a result of this, nearly one-third of companies have closed or reduced accounts, while 20% are having to trade without credit insurance with all the risks that this brings. For smaller companies, the problems are particularly severe and they have been forced to stop supplying customers if credit insurance is not available for fear that one bad debt would bring the company down.

"Along with other representative bodies, we fought hard to persuade government to introduce a top-up scheme, but it is clear that by the time this was announced in the April Budget, much of the damage had already been done.

"It is clear from this survey that the scope of the Scheme and its cost has made it unattractive to all but very few companies in the construction products industry.

"We will be discussing with government ways in which the Scheme might be further modified to address the concerns that have been raised, but unless the government is prepared to extend the Scheme beyond the end of the year, any changes are unlikely to have any really beneficial impact.

"We are particularly concerned that the absence of an adequate system of trade credit insurance will not only slow down the recovery of the industry - companies being reluctant to supply their products without appropriate credit insurance, but also delay the much needed boost to the economy that construction brings."

Other key findings

Although 84% of companies had sought to cover more than half the value of the goods they supplied, only 31% had successfully obtained this level of cover.

As a result, most companies had modified trading terms, reduced credit limits, or were now requiring cash up front.

Nearly a quarter of companies were trading without credit insurance.

The main reasons companies had not taken advantage of the top up scheme was that it was too expensive or that credit insurance had been totally withdrawn from those they supplied and it was therefore of no value. Nearly 20% said their credit insurer was not offering access to the scheme.

Companies were most keen to see the Government introduce a scheme that helped those where credit insurance had been reduced to zero on those they supply.

Reducing the cost of the current scheme was also seen as something that needed to be addressed.

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