By Laura McGuire
Credit Insurers have been dragged into the spotlight after it emerged that they have pulled cover on a host of some of the country’s biggest retailers over the past few months.
Both Boohoo and Asos have been hit by insurers withdrawing cover on their transactions.
Over the summer, it was revealed that Allianz Trade, formerly Euler Hermes, reduced its cover on Boohoo by an average of 50 per cent, placing further pressure on the fast fashion favourite after it struggled with sales amid the cost of living crisis.
The leading creditor firm also withdrew cover from Asos suppliers in June due to a challenging economic climate and the company’s poor financial performance.
Online retailer Very Group also saw its cover pulled earlier this month over concerns with its finances. The company revenues only increased by 0.1 per cent according to its latest third quarter results, sitting at £1.6bn.
Group fashion and sports retail sales at Very also declined by 9.4 per cent year-on-year, with the company blaming a “heavily promotional environment for fashion” for the fall.
“One of several providers of credit insurance to our suppliers has reassessed its cover with respect to the Very Group,” a spokesperson, told trade outlet Drapers earlier this month.
“It has done the same with several retailers due to its view of the market. We continue to see other credit insurers maintain or increase cover with respect to the group.”
Credit insurance is an important part of the retail ecosystem and protects suppliers from retailers collapsing in between expecting an order and payment. If insurance isn’t available suppliers ask for cash up front.
Russ Mould, investment director at AJ Bell, said that the relationship between creditors and retailers is a ‘very delicate balancing act’.
Insurers for their part say they cannot offer credit insurance if they are unsure of the sustainability of those bigger retailers.
Collapsed retailer Wilko also got its cover pulled less than a year before it fell into administration.
Russ Mould, investment director at AJ Bell, said that the relationship between creditors and retailers is a “’very delicate balancing act”.
“It’s one of those things that you do see during a certain stage of a company’s lifecycle. It does happen and I guess it’s the supply chain looking to protect itself and insurers looking to protect themselves.
“They [insurers] don’t do it unless they feel there is a good reason for doing so in my experience,” he said.
But the withdrawal of cover is now hitting smaller players in the sector as well.
City A.M. understands that Manchester business eComplete, an e-commerce start-up, had its credit insurance pulled just as it started to implement a restructuring in recent weeks as it seeks to avoid administration.
The business plans to reduce headcount to split its operations between its founders in order to bring costs under control but the withdrawal of cover now means creditors have little protection.
Unsurprisingly, creditors are putting the squeeze on start-ups such as eComplete, just at the time when breathing space is exactly what the business needs.
“Trade credit insurance provides valuable cover against the risk of businesses not being paid for goods or services that they sell, as well as giving them access to detailed information and guidance on all aspects of trade,” a spokesperson for the Association of British Insurers told City A.M.
They added: “In the first half of this year, insurers paid out £101m to help firms survive bad debts, up 23 per cent on the same period last year. Any decision to limit or withdraw cover will be up to individual insurers after careful consideration of the risks”.
City A.M . has contacted eComplete and The Very Group for a comment.
