One of the country’s biggest DIY chains, Focus has complained that credit insurers have almost completely pulled the cover they offer to retailers.

Credit insurers are meant to cover suppliers against the risk of customers going bankrupt before paying for the goods the shop supplies. However, Focus has said that credit insurers are now covering less than 5% of its stock.

Bill Grimsey is the chief executive of Focus, and has written to the business secretary asking for an investigation to be conducted.

This loss of cover could mean suppliers ask retailers to pay bills more quickly, possibly even in advance of deliveries, which could put a strain on the retailer’s working capital.

According to Mr Grimsey, Focus has been planning for 2009 not to bring in much profit, and has therefore been negotiating with its suppliers and landlords to reduce its cost base.

He told BBC Radio Five Live: “We planned for all this [downturn], and keep the credit insurers aware of what we are doing, and why we are doing it.
“We just opened two new stores, so that is hardly the sign of a business that is about to go into administration.”

He also said he had invited credit insurers to Focus’s suppliers conference, and given them Focus’s monthly management accounts. On top of this, the group has said that their annual sales are about £450million and it employs 4,900 people.

“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 added.

He also said the suppliers were currently being co-operative, but he was not going to agree to shorter payment times with any of his suppliers.

He said: “my job is to make sure this business survives 2009, and thrives as the market improves.”

It is well known that one of the problems recently closed High Street chain Woolworths, faced was: in its final few months, it was forced to pay cash when buying goods from suppliers. This was because trade credit insurers were no longer prepared to insure Woolworth’s suppliers.

As Woolworths paid upfront it ran out of money fast.

The Association of British Insurer’s (ABI)’s director for general insurance and health, Nick Starling, has said that credit insurance is not withdrawn from firms lightly.

He said: “When an insurance company decides to withdraw or reduce trade credit insurance cover, it is done only after extensive and detailed analysis.
“Insurers have built up extensive risk management data and by not renewing cover are trying 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 a cause.”