Policies Related To Trade Credit Finance Essay

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Trade credit is very informal and is hard to monitor and therefore are often overlooked in policy and research (Paul and Boden, 2011). The common setback of trade credit management is late payment, which may arise from abusive power behavior by large companies towards small suppliers. The UK government authorities have created numerous policies that tackle the late payment. Many of existing reports have recommended the government intervention in tackling late payment problem but many of these policies were created based on empirical evidence and statistics few of small businesses which are used to represent the whole population (Auboin, 2010, Grave, 2011, Paul and Boden, 2011, ACCA, 2012, Pike and Cheng, 2002, Wilson, 2008). However, many still believe that the subject matter of late payment cannot be tackled through large sums of quantitative evidence only but through proper engagement with small business and SMEs, collecting enriching information into late payment and trade credit related issues. This chapter will examine the current policy stance of the UK government and the EU and will evaluate the proposals that are under consideration. Based on the theoretical understanding of trade credit developed in Chapter 3, this Chapter will seek to identify any theoretically sound policies that could be taken by government / the EU in order to improve the in addressing trade credit environment for SMEs.

5.2 Trade Credit Insurance Top-Up Scheme 2009

On 1st May 2009, the UK government had initiated the Trade Credit Insurance policy Top-Up Scheme (TCI) that ran from 1st April 2009 to the 31st December 2009 [1] . The scheme is designed to tackle the sudden reduction in private sector insurance cover against customer non-payment and bad debts. The trade Credit Insurance Top-Up Scheme (TCI) was a £5 billion initiative derived out of the UK government 2009 budget which allowed the businesses with trade credit insurance policies to buy an additional cover on top of their present policy cover. Under the TCI business with existing trade credit insurance policy may purchase additional insurance. The top-up Scheme was for eligible UK businesses that already have insurance cover after the 1st April 2009. The government scheme also involved various top trade credit insurance providers in such as; Euler Hermes, Atradius, and Coface e.t.c. Although, the legal relationship will be between the insurance holder and the credit insurance provider, the credit insurance provider will have a separate legal relationship with government in respect to the top-up scheme. Therefore businesses will not interact directly with the government in order to participate in the scheme. All applications, payments, claims and queries should be directed to the selected credit insurance provider and not the government. The scheme will top-up the insurance cover with a minimum credit limit of £20,000 up to £2 million as the maximum amount on any increase cover. For instance, if an insured cover of supplier has reduced from £200,000 to £100,000, the supplier can opt to buy a top -up cover from £20,

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