Brexit stockpiling creates trade credit insurance shortfall risk
Suppliers are at risk of having insufficient trade credit insurance as some British firms, such as retailers and manufacturers, stockpile goods amid mounting concerns of a no-deal Brexit, according to Marsh, an insurance broking and risk management solutions provider.
Traditionally, buyers purchase goods on credit terms, sell these goods on to the consumer, and use some of the revenue to pay the supplier before the terms of payment expire, Marsh explained. By stockpiling goods, buyers may be unable to generate enough revenue to cover the credit, which greatly increases the risk of non-payment, the broker continued.
Concerns of a no-deal Brexit have led to industry groups to speculate on the requirements of stockpiling vital goods, such as non-perishable food produce, medical supplies, and vaccinations. Approximately half of all of the UK’s food supplies alone are imported, much of that coming from the European Union. Marsh notes that some firms are ramping up their inventories in preparation for any delays caused by potential trade restrictions.
“Stockpiling could reduce cash flow and tie up liquid funds that could otherwise be reinvested into growth, research and development,” said Tim Smith, global trade credit practice leader at Marsh. “It also creates further financial burden by potentially forcing firms to increase their spending on storage, in order to house their growing inventories.
“Credit insurance is a proactive policy which not only pays out in the event of non-payment, but also allows suppliers to make informed decisions about their customers by drawing on the market and economic expertise that credit insurers hold,” Smith said.
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