Euler Hermes hits back as credit row escalates

Euler Hermes,
the UK’s largest trade credit insurer, has defended its decision to restrict the
terms of its cover, saying the move will help customers weather the recession.

Earlier this month Accountancy Age revealed that Euler Hermes had
written to customers informing them of changes to the rules for obtaining cover.

Customers renewing their trade credit insurance policies on or after 1
January 2009 will have their automatic cover, known as the discretionary limit,
cut by 30% unless they use First Source to establish their customers’
creditworthiness.

‘In the current economic climate, trading history has become an unreliable
guide to present creditworthiness,’ Euler Hermes said. ‘We therefore believe
that the best protection for our clients lies in obtaining an up-to-date First
Source opinion based on our own comprehensive risk assessment processes before
deciding on the level of credit to be granted to a customer.

‘Unlike the credit reference agencies, Euler Hermes UK backs its decisions
with its own money.’Trade credit insurance has become a controversial business
issue in recent months. Some company collapses have been blamed partly on
insurers withdrawing cover, and earlier this week the chief executive of Focus
DIY, Bill Grimsey, attacked Euler Hermes as well as Coface and Atradius for
reportedly pulling cover from suppliers.

When suppliers cannot obtain credit insurance themselves, they may be forced
to demand upfront payments, putting more pressure on the companies they trade
with.

In December Euler Hermes told its customers that they would have to use its
credit checking service to keep the same level of discretionary cover when
renewing their policies. The cover protects suppliers against the risk of their
customers going bust before paying them for the goods and services they have
delivered.

Euler Hermes said that its First Source credit rating service would help
customers better assess the risk of suppliers going bust or defaulting on
payments because it was more reliable than rival services.

The length of time that a credit report is valid, known as the period of
justification, will also be reduced from 12 months to six for those companies
that do not use First Source.