Businesses could face hikes in their trade credit insurance premiums, as well as reductions in cover if their customers perform badly, according to trade credit insurer Coface.
Coface, the French insurer, has outlined plans to adjust premiums to better reflect the risk that suppliers to businesses will fail to pay their bills.
Coface, which is understood to have 1,500 business customers across all sectors in the UK, told The Daily Telegraph that it had begun a two month transition to new contract terms with its customers as part of an overhaul of its business model.
Coface said it would give its customers its credit score for the businesses they supply, to explain the level of risk more fully. Coface managing director, UK and Ireland, Xavier Denecker encouraged businesses to challenge Coface if they felt these scores to be unfair. Successful challenges would result in a move in the premium and the cover within seven days in most cases, which would allow businesses to extend credit to customers that began ordering more stock.
He also called on businesses to be more transparent with their current trading performance in return for trade credit insurance cover for their suppliers. He said: “What we are saying is that opacity has its costs. If I don’t know where my risk is I will put my premium higher than it was.”
He said that premiums will remain higher than pre the recession because past premiums did not accurately reflect the risk that businesses would fail to pay their bills.
Coface will ask customers to use a service called CreditPal to record and update their trading performance. Coface also plans, for the first time, to publish the credit assessments of some of the UK’s largest companies.
Many retailers suffered last year when credit insurance was removed or reduced. Coface is one of the three key trade credit insurers, including Euler Hermes and Atradius.The government put in place a a £5bn top-up scheme last year, which lasted until the end of 2009, to support businesses through the recession over concerns that exporters were being denied the cover they needed to trade through the recession.
Denecker added that credit limits were now “coming back to a more normal level” and said the trade credit industry had not died with the economic crisis.
“Some politicians thought the model was completely outdated and would not survive the crisis. It did survive,” he said, adding that reinsuring risks and recapitalising had been key.
He added: “It is true that we as an industry entered the crisis with prices that reflected the good times and not the possibility of bad ones. So credit insurance has not been removed as an important player in the market but yes we must change some things in the business model. The first thing we need to change is transparency and the second is flexibility.”