Trade Credit Insurance: It's in the Bag
It has been reported that Nelson Packaging Limited has gone into administration and the new 5p charge for plastic bags has been blamed. Let's look at the facts and find out how trade credit insurance could have protected the creditors!
Wales was the first UK nation to introduce the bag charges, followed by Northern Ireland and then Scotland.
A report in 2015 found the number of single-use carrier bags handed out by shops in Wales fell by 71% since charges were introduced in 2011.
Northern Ireland and Scotland introduced their charges in 2013 and 2014 respectively and also saw significant drops in usage.
In Northern Ireland in 2014 there was a 42.6% annual reduction following a previous drop of 71%, after charges were introduced.
Similarly, the number of plastic bags handed out in Scottish stores was slashed by 80% - the equivalent of 650 million carriers - in the first year of the 5p charge.
It is clear that the new charge has affected demand but suppliers to Nelson Packaging would not have necessarily predicted their demise when credit reference agencies were suggesting they were a very low risk. In fact some were proposing a credit limit of around �40,000 only a few days before their collapse. Suppliers with a trade credit insurance policy would have been protected from this unforeseen risk. So what is credit insurance? This type of trade credit insurance policy protects companies against bad debts.
Whilst the new 5p charge may be the headline cause of the company failure, another factor to look at is competition from abroad. Many companies would be concerned to trade with foreign businesses without trade credit insurance they know nothing about. Some entrepreneurs would be inclined to "take a risk" but the more prudent would look into what trade credit insurance companies can offer.