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19 November 2007


Credit crunch impact will increase businesses’ reliance on trade credit predicts Atradius


Cardiff, 19 November 2007 - Credit insurer Atradius warns that the restricted availability and rising costs of bank finance will result in many businesses reviewing their payment relationships with suppliers to see them through the “credit crunch”.


With the global banking sector reeling from the continuing impact of the credit crisis in US sub-prime mortgages, lenders are predicted to lend less money to each other at higher interest rates, companies or to individuals. As a result, leaders of both new and established firms will need to seek alternative sources of funding to maintain working capital and reduce dependency on their

"It is not unusual for credit terms to have lengthened from 60 days to 150 days.."

Shaun Purrington

finance providers.   Managing the trade credit cycle by getting paid before having to pay a supplier is a well established practice for managing working capital needs but for many companies this is the only viable option left open to them.  This will lead to an increase in requests to suppliers to increase credit periods with the subsequent knock on effect along the supply chain.  Trade credit is likely to emerge as the new debt.


Shaun Purrington, Commercial Director of Atradius UK and Ireland, commented:


“At Atradius, we have seen a significant surge in businesses approaching their suppliers with requests for extended trade credit as a lower cost alternative of funding shortfalls in their working capital. It is not unusual for credit terms to have lengthened from 60 days to 150 days as firms rely more on trade credit arrangements as an alternative to short term borrowing from banks.  This could over time significantly impact the trade credit dynamics within certain sectors.


“However, while increased credit terms provide some working capital headroom for the business, waiting longer for payment presents a longer horizon of risk for its suppliers and if the customer pays late or not at all, it could be disastrous for its own cash flow. Suppliers who are being asked to enhance credit terms should always agree terms in writing before trading, never approve a longer credit period than they can afford and consider using credit insurance to protect themselves from the increasing risk of late payment and default.