Focus unhappy at credit insurers

Focus employees nearly 5,000 people in the UK

DIY firm Focus says credit insurers have almost completely pulled the cover offered to the retailer- one of the biggest in the UK.

Focus says less than 5% of its stock is now being covered by credit insurers.

Focus chief executive Bill Grimsey is not happy and he's written to the business secretary - Lord Mandelson - calling for an investigation.

Credit insurers cover suppliers against the risk of their customers going bust before paying for the goods supplied.

Planning ahead

The loss of cover can mean suppliers ask retailers to pay bills more quickly, or in advance of delivery, putting a strain on the their working capital.

The real issue is the economic slowdown and the lack of available credit as a result Nick Starling, Association of British Insurers

Mr Grimsey said Focus had been planning for a tight 2009 by reducing its cost base, and negotiating with its suppliers and landlords.

"We planned for all this [downturn], and keep the credit insurers aware of what we are doing, and why we are doing it," he told BBC Radio Five Live.

The group has annual sales of about £450m and employs 4,900 people.

"We just opened two new stores, so that is hardly the sign of a business that is about to go into administration," said Mr Grimsey.

He said he had invited the credit insurers to Focus's supplier conferences, and given them Focus's monthly management accounts.

"The only explanation you can get from them is that we are in a risky area called retailing, where consumer confidence is going, and that we are in the DIY market, which is affected by the housing market," he said.

Woolworths hit

Mr Grimsey said his suppliers were being co-operative, and that he was not going to agree to shorter payment times with any of his suppliers.

"My job is to make sure this business survives 2009, and thrives as the market improves," he said.

One of the problems which contributed to the demise of Woolworths came in its last couple of months when it was forced to pay cash when buying goods from suppliers.

That was because trade credit insurers were no longer prepared to insure suppliers to Woolworths.

When Woolworths had to pay them upfront, it soon ran out of cash.

'Extensive analysis'

But Nick Starling, the Association of British Insurer's (ABI)'s director for general insurance and health, said credit insurance was not withdrawn from firms lightly.

"When an insurance company decides to withdraw or reduce trade credit insurance cover, it is done only after extensive and detailed analysis," he said.

"Insurers have built up extensive risk management data and by not renewing cover are tryng to help business avoid risk - they are in a better position to know where risk is.

"We are in unprecedented times and everything trade credit insurers do is geared towards giving their customers, often SMEs, the best possible service.

"The withdrawal of cover from a company is a symptom of a struggling business, not the cause. The real issue is the economic slowdown and the lack of available credit as a result."